Atanu Dey On India's Development

Coordination of the Factors

Cities are engines of growth because they “manufacture” wealth. That is why rich economies are predominantly urban, and those economies that are largely rural are poor. Therefore the transition from a poor economy to a rich one depends on the transition of the majority of the population from being rural to urban. The scale and quality of the basic habitation unit determines the success of an economy. A large number of small villages is sufficient for poverty; a number of large cities is necessary for prosperity. Economic growth is both a cause and consequence of urbanization, as can be seen anywhere around the world.

The ingredients for wealth creation are well known and conveniently listed as land, labor and capital—they are called “factors of production.” If you have a good recipe, the ingredients yield a good product; otherwise the result is unpalatable even with the same ingredients. The recipe can be termed “technology.” Over time, through painful trial and error, good recipes have been discovered and is fairly cheaply available to anyone sufficiently motivated enough to make something useful out of the available ingredients. In some cases, however, the capital may be insufficient. Fortunately, in many such cases, capital can be borrowed.

To build the Designer Cities, the DeCis, we need land, labor, capital, and technology. The technology exists. Over the centuries people have figured out how to design and build efficient, effective, and pleasant cities. We do have the land and sufficient labor to get any job done—with a bit of training of the labor, of course. The capital is the last and most critical bit. We just need to shift our perspective and consider the city to be a massive factory for producing wealth. Once you do that, you immediately see that the money spent on building a city is not expenditure but an investment. Therefore if we demonstrate that the return on investment is positive in the case of a city, investors will go for it.

The most important bit is to bring all the factors of production and the technology together simultaneously. It essentially is the solving of what is called a “coordination problem.” If you can sequence the set of operations properly, you can build using the existing factors in such a way that every stage generates the wealth that you need to move up to the next stage. It is an upward spiral. If you do need to borrow for the first stage, you figure out some innovative financing mechanism.

The first stage is the acquisition of land. There are enough examples of how land can be the foundation upon which you can build vibrant communities. It is just a small step from that to building entire cities using the same method, as we will explore next.

[This is part five of a ten-part series. Part 6 is "Land Development." You will find the entire series and previous posts on the subject in the category "Cities and Urbanization." ]

  • http://trialsaandtribulations.blogspot.com/ Sridhar Vanka

    “Cities are engines of growth because they “manufacture” wealth. That is why rich economies are predominantly urban, and those economies that are largely rural are poor. Therefore the transition from a poor economy to a rich one depends on the transition of the majority of the population from being rural to urban. The scale and quality of the basic habitation unit determines the success of an economy. A large number of small villages is sufficient for poverty; a number of large cities is necessary for prosperity. Economic growth is both a cause and consequence of urbanization, as can be seen anywhere around the world.”

    I both agree and dis-agree with this para. While urban societies definitely are engines of growth, I do not think rural economies are necessarily poor. Isn’t agriculture a wealth generator : both in terms of the food it provides to an ever increasing population and also the other raw materials required for industrial growth ?
    Further, people work in cities with the hope that they can make enough money some day to get away to some place quieter. There has to be some getaway and I think rural societies provide this ideal getaway. They form the ideal foil, so to speak, for urban areas.

    Wouldn’t you agree ? I am not sure if you are suggesting that we do away completely with villages. Are you ?

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  • Dr. Pravin Chordia

    Whether to laugh or cry on this most childish article!! Sorry for such remark but sir we all urbanites are forgetting one major basic fact that production or true generation happens only in agriculture or in forests. Cities never produce anything but they are very intelligent to show wealth generation which actually comes at the expence of screwing the natuare,rural resources. Sir we all urban people are parasites to the mother earth, noway we help or act in protecting it. This act is done by the nonurbanites. In fact today’s whole system if fallaciously based on wrong notion that the growth lies in papercurrency which is actually totally wrong both in long run and for our future. If we consider energy audit of our lifestyle we urbanites have total debitors eg. food, fuel, clothing, transportation etc. all things require tremendous amount of energy and today we are totally dependent of availability of fossil fuels and wrongly (lowly) valued food stuffs for our existance. we urbanites who live such parasitic life are on the otherhand proudly declaring ourselves as main engines of the economy etc. ect. and entitled themselves for all possible resources. If our policies continue in the same way (which is most likely scenario) I am dam sure that doom’s day is not far off. Wishing all of us best luck.Sorry for using little harsh language but sir please take these things seriously. Global wwarming, climate change, pollution rise, deforestation, increasing dependence of fast depleting fossil fuels, degrading health of agricultural soils, waste menace in the cities – most of the problems have root in the megacity – excessively centralised developement pattern. If we promote decentralised developement pattern (which was advocated by Mahatma Gandhiji) that system will be more sustainable & will have better chance of survival.