[This essay is made up of a collection of blog posts on the topic of cities and urbanization. The posts are from early 2007.]
Think Big and Make No Little Plans
Great visionary and legendary architect Daniel Burnham (1846 – 1912) advised:
Make no little plans. They have no magic to stir men’s blood and probably themselves will not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will never die, but long after we are gone will be a living thing, asserting itself with ever-growing insistency. Remember that our sons and grandsons are going to do things that would stagger us. Let your watchword be order and your beacon beauty. Think big.
A. Choosing A Different Future
Where is India today? How did it get here? Where should India be going? And how should it get there?
You and I are exceptional. We live in cities, engage in non-agricultural work, and earn far more than what the average Indian earns. The vast majority of Indians live in villages, and eek out a meager existence from agricultural related labor. We tend to forget the fact that our economic prosperity and our lives in urban India are correlated. Therefore if the goal is India’s economic prosperity, somehow the 700 million living in some 600,000 villages of India have to have the same option of living and working in urban India on jobs in non-agricultural sectors.
Do we want the reality of today’s India to persist into the future, a generation or two hence? Or do we want a future where the majority of Indians are urbanized and are engaged in highly productive non-agricultural sectors? We can choose, and having chosen, we can actually make that future happen.
Development and Growth
It is fair to assume a broad consensus on that development is a good thing. Of course, development and economic growth are not the same thing. You can have one without the other. For a very materially rich society, development does not require economic growth. It is possible to appropriately channel resources towards development, an exercise in greater allocative efficiency if the resources are available in plenty. But in a materially poor society, merely changing the allocation of resources is not likely to be sufficient. There you have to have increased production, in addition to the problem of efficient allocation of what is produced. The US, for instance, has a per capita annual income of around $28,000. Extreme variance in incomes and wealth can be reduced with appropriate redistributive mechanisms. Contrast that with India. Yes, there are a lot of very poor people in India. Even perfectly distributing the national income leaves everyone pretty poor. The conclusion is hard to avoid: India needs economic growth for development.
Economic growth is both a cause and consequence of urbanization. The reason is simple. Cities are the engines of growth. The high population and population densities of cities reduce “transaction costs.” Services are cheaper (as compared to the same in rural areas) because infrastructure is less costly because of scale economies. That is, infrastructure have high fixed costs and investment in infrastructure is lumpy. The high aggregate demand and supply of infrastructure in urban areas makes lower prices possible.
So the logic so far: economic development of India requires economic growth. Cities are engines of growth because there is a bi-directional link between urbanization and growth. Therefore the rural people have to be urbanized for India’s development and growth. Every economy has followed that path which begins with agriculture being the main source of income for the majority of the population and ends with agricultural employment being a very small fraction of the total labor force.
The problem with India’s rural development has been that the focus has been on the development of rural areas, not rural people. The policy makers have been focusing on the wrong goal, that of village development. It is silly to attempt to develop 600,000 villages because it cannot be done. The future is deserted villages because people vote with their feet when they get the chance to move to a city. Only in very rich economies do people have the resources to live comfortably in villages. India cannot afford to live in villages; it is not that rich.
B. India: Land of Endless Opportunities
Where there be challenges, there be opportunities. That is a mantra well-known to every entrepreneur. That immediately implies that India is truly the Land of Unlimited Opportunities. The challenges have been created by a persistent attachment to a certain way of thinking and doing. As Einstein astutely noted, the significant problems we face cannot be solved at the same level of thinking we were at when we created them. Translating the challenges into opportunities requires a different way of thinking.
How to address the challenges of rural India – and by extension, the challenges of India – has occupied some very sharp minds. Although, it would be immodest of me to claim that I have any special insight into the problems, here’s how I see it.
My view is that the problem of rural development has to focus on the development of rural people, not the development of villages. Villages are not the proper object of analysis when it comes to economic growth, and hence economic development. By insisting on the development of villages, scarce resources, which could have been more efficiently used elsewhere, are wasted. There is another way of using the same resources, and that is the development of cities. It seems to me that the answer to rural development lies in urban development. Apparently paradoxical but true.
About 70 percent, or 700 million Indians, live in villages. Clearly, there is no possibility of urbanizing them by migrating them to the existing cities which are already bursting at the seams. All of the major cities are little more than mega-slums. Practically all Indian towns and cities are unplanned and inefficiently use land and other resources. They are arguably inadequate for the current residents, leave alone adding hundreds of millions more people to them. The existing urban centers would do with a massive makeover but we cannot afford that. (Fires, earthquakes, carpet bombings have benefited many other cities in the past.) So there is clearly a need to have new urban centers to accommodate the hundreds of millions of people who need to be in cities for economic growth and development. And that is the greatest opportunity that India provides to everyone–people rural and urban, firms domestic and foreign, governments, NGOs, multinational entities . . . the list goes on.
Imagine building absolutely new cities from scratch for 600 million people. Imagine 600 new large cities of one million people each. Imagine building houses, schools, shopping centers, parks, factories, roads, public utilities, hospitals, libraries, . . . And now imagine doing that using the best urban planning known to humanity. Take whatever humanity knows about the best way to get things done, and use that to design and build cities that can develop and sustain the people for generations.
The Advantage of a Lack of Legacy
That is the greatest opportunity we have – of building from scratch – which is not available to any developed economy. Take for instance the US. US cities are the notoriously inefficient in terms of resource use and sustainability. Practically all Americans live in cities and if you were to build new, more efficient cities, you will have the greatest difficulty populating them because people will be reluctant to move from their home cities. Their legacy urban centers will burden the transition to living in more sustainable cities. Contrast that with India. Most Indians living in villages would love to have the chance of living in well-designed efficient cities.
Allow me to illustrate that last point with an analogy from a different sphere. The US had one of the best landline based telecommunications system in the world by the early 1970’s. That legacy system actually prevented them from transitioning to a more efficient mobile telephony system in the 1990’s. India, given that there was no landline telecommunications system to speak of, immediately leapfrogged the twisted copper-wire stage and went straight to the more efficient wireless system.
What I am proposing is a similar “urbanization leap” for the majority of Indians. Instead of futzing around in the margins with trying to make the villages a little better, take a bold step and create the world’s most efficient cities. I know, it is more than slightly crazy to say that we can do something that others have struggled with for many decades. But I submit that it is not only possible but also possible in a surprisingly short time. What we need to do is to think differently.
What we in India need is not so much hard resources as we need a bold compelling vision. We need the vision to look beyond the here and now, and see the future. If we have a bold, coherent, inspiring and realistic vision of the future, it will serve as the guide to purposeful action.
C. The Urbanization Leap
Economic growth is an imperative if the widely discussed goal of development has to be achieved by India. There are a number of well-known causative factors that lead to economic growth. Among them are an educated and healthy population, reliable and adequate infrastructure, a free and fair market-driven economy, and the availability of public goods such as law and order, political freedom, efficient governance, etc. These causative factors have complex interdependencies and have to be present–simultaneous in time and co-located in space—for economic growth, and consequently, development. Even after a fairly superficial analysis it becomes apparent that these factors of economic growth can be most efficiently provided in – and are usually associated with – cities.
Let’s take a few of these factors and see how they relate to cities. Educated people find the opportunities to use their skills in cities because they need the supporting infrastructure and other skilled people to fully utilize their specialized skills. Cities aggregate a large number of people with different skills which make all of them mutually dependent for being productive. Furthermore, the education of the next generation itself is most efficiently provided in cities. Thus cities are the centers not just for the use of education but the provision of education also. Try educating to a high level the children of small villages within the villages and it would soon become clear that it is prohibitively expensive. It has never happened because it cannot be done. Every center of excellent learning – schools, colleges, universities – is associated with urban areas, either from the beginning or from the urbanization of the place where a great center of learning is created.
Why is that so? Because of scale economies, as economists say. Given a large enough population at a specific location, the demand for education will be sufficient for its efficient supply. And to supply the large amount of educational services, you need a large number of people. These people in turn need non-educational services and they are also provided by other people in that location. To provide these services you need infrastructure—power, telecommunications, houses, parks, roads, water, sanitation, etc. To provide all the infrastructural services, you need yet more specialized people. Following this line of reasoning you soon reach the conclusion that it needs a city. It needs a city because a city is at the heart of a developed modern complex highly skilled highly specialized economy. See any developed and rich economy, and you will see that it is primarily a collection of cities.
You can of course have an economy based on a large collection of villages. For most of recorded history, economies have been just that, village-based, agrarian, and poor. They were not modern, efficient, or rich. Of course, you don’t have to be modern, efficient, and rich. You can choose to be traditional, inefficient, and poor. A Gandhian economy, in other words. An economy which is centered on “self-sufficient” villages is quite feasible. The best part is that one has the choice to live in self-sufficient villages. Very few people choose to do so, however. That suggests that there are very few true Gandhians among the general population. Somehow people appear to prefer the material comforts and opportunities of city living over the smug satisfaction of living a life of poverty and moral superiority in small villages. At the first opportunity, people from villages migrate to cities, and they prefer to do this even though they often end up living in slums within cities. They reveal their preferences by voting with their feet.
Cities and Freedom
It is important to ask and answer the question why people prefer cities. Here is my tentative answer. It has to do with freedom. People somehow have an innate desire for freedom. They want to have the freedom to be who they are and have the potential of becoming. Cities provide us with degrees of freedom that villages seldom do. Not just economic freedom in terms of earning a living most conducive to our abilities and aspirations, but more importantly social freedom. Of course volumes have been written about the dehumanizing anonymity of cities. But there has to be a good reason for why this so-called “dehumanized existence” of urban living is preferred by so many around the world and in all times since cities came into being. Perhaps it is the drive for freedom that impels the population to live in cities that provide them freedom.
I am sure that there are those who have a romantic attachment to village life. I am also fairly certain that anyone reading this who has romantic notions of living in a village actually lives in a city. The luxury of an imaginary idyllic village existence can only be afforded from the comfort of an armchair somewhere in an urban area.
The argument so far: India needs economic growth for development to occur; for economic growth, urbanization of the majority of the population currently living in 600,000 small villages is a necessity; the current urban centers cannot accommodate the present urban population adequately, leave alone taking on any additional burden. Hence the proposition has forced itself on us: we need new urban centers to accommodate the hundreds of millions who must get out of villages for India’s economic growth.
Shortly I will delve into the simple matter of how we can actually create new cities in India. It will not be a blueprint for economic growth, but rather the outline of a strategic plan. I will argue that it is possible to engineer cities that can liberate the hundreds of millions held captive in the dismal little villages of India. Creating these cities would essentially leapfrog India from being largely a village-based poor economy to being a modern affluent economy, and thus allowing the hundreds of millions currently living in villages to bypass the intermediate state of migrating to the slums of ill-planned congested cities.
D. Cities As Complex Adaptive Systems
Two fish were swimming along a stream when they come upon a third fish which remarks, “The water is absolutely fine today.” The two carry on without a reply. Later upstream one of them says to the other, “What the heck is water?”
Talking fish is not the point of the little story, of course. I find it remarkable that we often miss what we take for granted, and don’t question what we are perpetually immersed in. What explains the unreasonable success of cities is not something that we ponder casually, even though virtually every one of us lives and earns one’s livelihood in one.
The Success of Cities
Let’s examine “the unreasonable success of cities” first. Success of cities compared to what? Compared to the success of non-cities, or villages. In other words, we need to inquire into the success of urban areas relative to non-urban areas. Practically every advance in human understanding and ability occurred in urban locations. Look carefully into the genesis of any human artifact or idea and you will eventually find that it arose from the activities of humans in large aggregations of people.
The amazingly complex hardware and software that I am using to write this piece was not conceived of, developed, manufactured, and improved upon in some small little village somewhere in the back of beyond. The network of computer networks, the Internet, was not developed for or by people who lived and worked in isolated small pockets of humanity. Like all advances in science and technology, that network was the result of the network of networks of a large number of people of urban areas. The power of networks and network effects is surprising.
Complex Adaptive Systems
There is something that emerges from the activities of a large number of people interacting in close proximity that must have something to do with the fact that nearly all human advances are rooted in urban areas. Theoretical advances in the study of what is called “complex adaptive systems” throw some light on this emergent phenomenon. I think it is instructive to learn a bit about CAS because it helps us comprehend a wide range of interesting subjects.
Complex adaptive systems are composed of a diverse set of a large number of independent entities called ‘agents’ which are aggregated (either physically or logically) through some mechanism, and they interact within the framework of a simple set of rules, and from these interactions and interdependencies emerges a system which has properties that are greater than the sum of the interacting parts.
That is one heck of a long sentence. I can’t believe that I actually wrote that. I could try to break it up into simpler bits but it would lose some coherence. Let’s just move on.
The basic idea is that what comes out of a city of 100,000 people is somehow more than what comes out of a hundred villages of 1,000 people each. Or consider this: the physical co-location of five colleges (Sciences, Engineering, Humanities, Law, and Medicine) with their dozens of departments into a single university campus makes things happen such as would not happen if these departments and colleges were scattered over hundreds of locations. Theoretical reasoning about the advantages of aggregation (aggregation economies) is lent empirical support by the success of, say, the Silicon Valley in California.
Scale and Diversity Matter
Scale matters in pretty much every aspect of human action. Take manufacturing, for instance. Most of the things that make life comfortable have not only come out of cities with its aggregation of people, but they are manufactured in factories which give rise to scale economies. Factories depend on the availability of a large number of people with diverse skills using highly sophisticated capital equipment. This imposes the constraint that where such manpower is not available, manufacturing cannot take place. Both diversity and scale matter. The average cost of a car or a PC manufactured in lots of hundred would be many times that of a car or PC manufactured in lots of millions. Mass production is at the core of the fantastic economic success of economies, and it fundamentally depends on scale economies. Try manufacturing anything at the scale of a small village, and it would be soon become apparent that the economics just doesn’t work out.
It should become fairly obvious that there is a relationship between the performance of an economy and what the structure of population distribution is. If the population is distributed into an immensely large number of small habitations (villages), then the cost of producing stuff is high; conversely if an economy has most of its productive assets in denser urban locations (cities), productivity and production is high, and consequently the average income is correspondingly high.
There is no escaping the conclusion that urbanization and economic growth are conjoined twins, as I have been arguing in this series. For the development of India, we need economic growth. For economic growth, we need the urbanization of the people. But they cannot be urbanized into the current cities given the state of the cities. Nor can they be urbanized in the 600,000 villages where the current majority – estimated 700 million — of Indians live. For decades the futile exercise of developing villages has been attempted and with results that a bit of thinking through the issues would have predicted. The policy makers of India are trapped into a wrong way of thinking and unless the old mind-set changes, the struggle to lift hundreds of millions will be needlessly made more difficult than it already is.
Village Development Doesn’t Matter
It is reasonable to ask why the continued fascination with village-centric development even though experience has demonstrated that developing villages is neither economically feasible nor is it desirable. It is not feasible firstly because it is too costly to get anything done at that scale. Secondly, if it were a matter of a few hundred villages, we could have said to hell with economic efficiency, let’s just do it. But when you have more than half a million villages, that is out of the question.
Village centric development is not desirable because people don’t desire to live in villages. They are forced to, of course, but given a chance they will migrate. Cities offer opportunities that villages don’t. Here is a simple thought experiment. We do have the option of living in a village but we don’t. That shows that at least for us, cities offer greater variety and freedom than villages do. Is there any reason to believe that those currently forced to live in villages will continue to live there if the option of living in a city were available to them?
Then why do the movers and shakers continue to believe in village-centric growth and development? I am assuming that they believe in it because they are spending inordinate amounts of money in attempting that. I think there could be two non-mutually exclusive reasons. First, they may be simply ignorant. They have been fed lies about the wonderful romantic life in villages, of idyllic simplicity and humanity, of an existence imbued with a gentle communion with nature, and other such hogwash. They don’t have to live in villages and they don’t have the imagination and the empathy to realize that Indian village life may not be all that it is cracked up to be.
Second, it may be that using the excuse of funding village development, people up and down the administrative and political chain enjoy the perks of handling lots of money with very sticky fingers. Rural development is a socially costly exercise but privately it is enormously profitable. Everyone loves a good village development scheme, to paraphrase Sainath.
0. Small Changes are Sometimes Harder
There is something in the nature of the world that it is sometimes paradoxically more difficult to make small changes than to make big ones. Logically consistent big changes are more likely to succeed because of the interconnectedness of the world.
At times, big changes are forced on the system from external shocks which make the transition unavoidable because the old order is destroyed. It is suggested that around sixty-five million years ago, the Cretaceous-Tertiary mass extinction (referred to as the K-T event) where 70 percent of all living species disappeared was the result of an external shock which was delivered by a 10-km diameter chondritic asteroid slamming into the earth. That extinction destroyed the dinosaurs but cleared the land for the rise of the mammals – we belong to that class. Less dramatically but more palpably, India was forced to liberalize its economy when the external shock to the system arrived in the form of an external balance of payment crisis.
India is unlikely to face an exogenous shock to the system large enough to force it to build the cities that it needs for the hundreds of millions who are currently trapped in villages. The existing cities are dying and although the situation within them is dire and unbearable, it is the result of continuous adjustment to gradually worsening conditions over a sufficiently long period. These cities will not collapse in the next few years but if if present trends continue, in a decade or so, they will be dead. It is better to consider alternative plans now rather than when the collapse eventually happens.
In this series on the need for the urbanization of India’s population, I have explored the idea of deliberately building new well-planned efficient beautiful livable cities. I am convinced that it is possible to do so even in the face of the obvious challenges that such a gigantic undertaking would entail. I believe that the resources that are required will be created during the process of building the cities.
Cities generate wealth. That is, they produce stuff. That wealth itself can be used to produce the cities that generate even more wealth. With only a relatively little amount of resources but with a lot of gumption, one can start a process – a self-catalytic process – which can most certainly engage the considerable talents and resources of the country. Like the vision which impelled a nation to seek political freedom, the time is high that a bold vision was outlined for the nation for economic freedom. It is time to think big because the Indian people have what it takes to make a big vision a reality.
We have done it in the past – over two and a half thousand years ago with cities like Harappa and Mohenjo-daro.
1. Ancient Cities, Modern Slums
Isn’t it astonishing that 2,600 years ago, when most of the world was living in tiny little human settlements, the Indus Valley civilization had well-planned cities of Harappa and Mohenjodaro?
“Some of these cities appear to have been built based on a well-developed plan. The streets of major cities such as Mohenjo-daro and Harappa were paved and were laid out at right angles (and aligned north, south, east or west) in a grid pattern with a hierarchy of streets (commercial boulevards to small residential alleyways), somewhat comparable to that of present day New York. The houses were protected from noise, odors, and thieves, and had their own wells, and sanitation. And the cities had drainage, large granaries, water tanks, and well-developed urban sanitation,” the Wikipedia article on urban planning says.
What is even more astonishing is that now, two and a half millennia later, most of the current inhabitants of land of Harappa and Mohenjo-daro civilization live not in well planned cities but in tiny little impoverished villages, and some in unplanned congested mega-slums. The shame of the whole thing is that as a collective not only have they lost the knowledge of what cities mean but they don’t even dream of building and inhabiting cities. One wonders when the regression started and what led to the death of the spirit that built those ancient cities. Something snuffed out the spirit, something killed those dreams, something made the inheritors of such great vision and accomplishment into myopic poverty-stricken masses living in misery, huddled into very primitive small villages.
The world – or at least some parts of it – has moved on. They have built many wonderful cities, much grander in scale than Mohenjo-daro and Harappa. Over the centuries, human civilization has progressed pari passu with the development of cities. Immense understanding and knowledge of what works and what doesn’t in city planning has accumulated.
With a modest investment in airline tickets, our leaders can visit great cities and see them with their own eyes. They don’t even have to imagine. Yet they refuse to dream or perhaps they are incapable of dreaming. Perhaps they are too busy with their incessant bickering over who gets how much of the little pie of material wealth that is created. Their mental poverty doesn’t afford them the luxury of dreams. They just want a little bit more, not something better. Their vision has narrowed to focus on how to continue to live in villages. I have yet to hear or read of even one leader of India calling for the creation of great well-planned beautiful cities. More shameful than our material poverty is the poverty of our imagination and aspirations.
We have the power to imagine a different future even if our leaders don’t. Using our collective wisdom and skills, we have the power to dream big. More importantly, having dreamt the seemingly impossible dream, we have the power to make that dream a reality. We need to ask the question: if not us, who else?
2. Designer Cities
Creating a compelling vision which has the power to inspire is the first step to economic growth and therefore towards development. We have to imagine the future state first before we can make it a reality. Imagine that instead of 600,000 tiny villages, the same 700 million people were living and working in cities. Imagine that we had 600 cities with around a million people each on average. Let’s call these “Designer Cities” or DeCi (pronounced “desi.”)
I live in “Nagpur DeCi,” someone may say in the year 2020. What is it like? The population is about 1 million. Most people live in very tall high-rises, with the average residential building having around 40 stories, housing approximately 1,000 people. The footprint of the 1,000 buildings accommodating one million people occupies only 250 acres. That leaves a lot of area for parks, recreational areas, pedestrian areas, bicycle pathways and some wonderful wide tree covered roads.
By living in high density high-rises, we free up space within the city for lush greenery and roads for movement of goods and people. There are no traffic problems because of two factors. First, we have a compact and efficient city. The maximum commute is only 10 kilometers and that too on wide un-congested streets. You can use your bicycle if you don’t wish to take the excellent light-rail free public transportation system. Of course, some people own cars but most don’t because cars cost about five times what they used to cost. They figured out that internalizing the costs of the negative externalities of private cars gives socially optimal results.
The second reason for our lack of traffic problems is that the city was designed in such a way that it cuts down on needless moving about. The master plan was a marvel of urban planning. Over the centuries, people have learnt a lot about how cities work and how to design them so that they are aesthetically pleasing, comfortable for living and working in, and economically efficient. Most of what you need for daily living, you can get by just walking around. Shopping complexes are scattered all across the city, as are offices, schools, parks, entertainment facilities, gyms, medical facilities, and various public facilities.
Though compact, our city is not crowded at all. We have tons of open public spaces such as parks and swimming pools. Being compact, all our public utilities are very efficiently provided. From garbage disposal to recycling of water and waste – everything has been carefully thought of. Nothing was ad hoc and haphazard as you had in your old cities. We have large artificial bodies of water where rain water is collected. These supply all water related services and water is efficiently recycled. The widespread availability of clean and free drinking water everywhere itself improved public health immensely.
Our city has the usual collection of offices and other service oriented workplaces within the city. But at the outskirts of the city, we have manufacturing facilities, farms, and other such facilities that don’t have to be within the city. For example, our airport is outside the city but within reach of our fast light-rail system. Our main railway station is however underground at the city center. You can ride your bicycle – did I mention the fine bike paths we have? – to the train station, park it there, and take a high-speed train to the next DeCi about 100 kms away.
Strategically located outside our city is our pride and joy: the power plant. Using the best available technology and the most appropriate fuel, it generates all the electricity we use. And we use a lot of it. But the capacity planning is so good that we never have power shortages. We have power to run our factories, offices and homes. Of course, all our facilities are designed such that we make the most use of the free solar radiation. We use the latest advances in solar photovoltaics to meet our power needs to the extent it is dictated by economics.
How did all this happen? This sounds as if your DeCi represents not a dream but a nightmare right out of Central Planning. Tell me it ain’t so.
3. The Best Laid Schemes
Planning is uniquely human. Planning shapes not just human institutions and artifacts but indeed creates the future that is unknown and unknowable. Granted, the best laid schemes of mice and men, often go awry, as the poet lamented. When it comes to central planning, or planning by an all-powerful government bureaucracy, you can say that those schemes are guaranteed to go awry. But every failure of centralized government planning can be countered with numerous examples of successful private sector planning. The plain fact is that it is not planning that is a disastrous failure but rather it is centralized government planning that fails.
The Designer City, or DeCi, is the result of planning but not centralized government planning. In the case of the DeCis, the planning corresponds to figuring out the overall rules of the game, not the game itself. The game evolves through the participation of the players playing according to those rules. All of life is in some sense a game which organically evolves from a small set of simple rules. As much as we are compelled to play the game of life according to the rules derived from Darwinian evolution, we are also compelled to play the game of economic life according to man-made rules. If we have, for whatever reasons, a good set of rules, the resulting game is enjoyable. If we get the rule-set wrong, we suffer economic hardship.
Let’s take one example. If the rules do not allow very tall structures, then the footprint of the housing required for a certain population will be very high, leaving little land for parks and roads. But if the rule merely outlined how much open area must accompany how much built up area and for how many people, then how tall the structures that finally emerge will be dictated by an optimization process which would include the constraints imposed by the cost of construction, the demand for living space, and other factors that no central planner can foresee.
There is a role for government planning, of course. But the level at which the plan is conceived and the granularity of the plan are related. Take for example, an airport. The decision to have an airport, and where to locate it, is part of the planning at the level of the government of the city which the airport will serve. Which private party is actually assigned — or wins the bid — to build the airport is left to market forces and a set of rules. The actual plan for the airport, its capacity etc, must be determined by the private party, not some government bureaucrat who probably did not ever set foot in a well-designed airport. The builder can figure out the details which don’t concern the government. The builder can also figure out how the airport will be financed and how they will recover the investment. This they will do based on what the anticipated demand is, and will be in the future, for air transportation. People whose business it is to build airports know about these things. Otherwise they would not be able to survive in the business.
4. Financing Designer Cities
“If you believe that the money exists for building amazing futuristic cities in India, you must be certifiably insane.” That is the standard reaction to my scheme for building 600 cities for the 700 million Indians currently trapped in 600,000 villages. Where will the money come from? My answer is simple: out of thin air. That’s when they suddenly remember that they have an urgent appointment with their hair dresser or chiropractor.
Wait, wait, I say. That’s how all wealth is created: out of thin air. Let me explain, I say, as I force them to listen. Cities create wealth. And that wealth is what creates cities. Isn’t that the old chicken and egg problem? It looks like that but there is a way out of this seemingly impossible situation. But first we need to get a couple of building blocks for constructing the argument.
Let’s first distinguish between an expense and an investment. When you buy a productive asset or what is called capital asset, it is not an expense, it is an investment. You may have to borrow money to buy the asset but if you have chosen wisely, your asset will produce enough wealth for you to repay the loan in due course and you end up with the capital asset. What you need is the smarts to use the asset to increase your productivity. The capital asset may be as trivial as a cell phone that a vegetable seller uses to increase his sales. Or it could be as massive as “buying” a city to increase the productivity of millions of people.
The money spent in human capacity building – also known as education – is an excellent example for distinguishing between an expense and investment. The raw material is the basic human brain. The money spent transforms the raw brain into a trained brain. If the lifetime earnings of the trained brain exceeds that of the raw brain by at least the cost of the education, then you would say that the return on that investment (ROI) is positive. It is an empirically verifiable fact that the ROI for education is positive because investment on education has persisted for centuries. If the returns were non-positive, the market would have selected education out for extinction.
Modern factories are another example of a capital investment which create new wealth. Simply put, factories increase the productivity of the people. Which means that more stuff gets produced using the same or lesser effort. The increased production is more than what it took to create the factory in the first place. That is why factories persist.
A city, I submit, is capital equipment just like a machine or a factory. Only difference is that it is large. And while the cost of a city is large, so is the wealth that it creates. Therefore, theoretically at least, it is possible to “buy” a city on borrowed money and then pay back the loan from the increased income that comes from the working of the city. That is the secret of creating wealth out of thin air.
5. 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.
6. Land Development
When I first moved to the US, I was struck by the phenomenon of shopping malls located far away from the city, about an hour along some highway. Land, it occurred to me, was cheap outside the city and what they did was to build these huge malls that were in some sense islands of urban activities in the middle of rural areas.
Because of the cheap land on which the mall was built, the rents that businesses paid to locate themselves there were low. Because lots of businesses located at the mall, every business found it worthwhile to locate there. Because of the presence of so many businesses at one location, people found it worthwhile to visit even if they had to drive an hour or two. They could catch a movie, buy stuff, grab dinner, hang out and watch people, and just have a good time. Malls looked like well-planned micro-cities where people worked and did stuff but nobody actually lived there. Malls were made possible because people had cars to drive to them.
Malls come in different sizes in the US. There is the Great Mall of America, for instance, along interstate 880 in the SF Bay Area, occupying a few hundred acres. Then you have the humongous mall in Nevada occupying thousands of acres better known as Las Vegas. The general pattern is straightforward. Some developer buys a large tract of land, gets into agreements with a few “anchor” stores such as JC Penny or Macys, builds the mall, and the rest of the stores and other service providers such as fast food restaurants and movie theaters follow dutifully. In the case of Las Vegas, the anchor stores are the casinos and hotels. It is important to recognize that malls, large and small, are micro-cities whose economy is entirely service based, not based on manufacturing or agricultural production. But there is absolutely no reason that you cannot use the same micro-city model and blow it up to the size of a city and base the economy of the city a combination of manufacturing and services.
The basic model is simple. First, acquire a sufficiently large piece of cheap land. Second, make improvements on it such as adding utilities, roads and buildings. Third, get a few big commercial interests to locate themselves on this land. Finally, sell or rent subdivisions of the “improved” land to whoever wants it at such a price that you internalize the positive externalities you created by improving the land and coordinating the co-location of numerous businesses on the property. The profits made by the developer accounts for only a small fraction of the total wealth created by the process.
The same process can be followed for creating the designer cities that India needs by the hundreds. Briefly, a sufficiently large, perhaps 10 kilometer square, cheap land is acquired by a “developer.” The developer could be a public-private consortium. The developer then persuades some “anchor tenants” sufficiently large to give credibility to the later arrivals that this will be a going concern. Improvements on the land are begun and as the work proceeds stage by stage, smaller bits are sold off to interested parties to pay for the on-going improvements on the land.
7. Pune DeCi
“Pune DeCi” is a designer city started in 2010 and completed by 2016. Just 30 kilometers outside the old city of Pune, about 100 square kilometers of land was acquired. The government of Maharashtra, the state where Pune is located, was a partner in the “Pune DeCi Development Authority” and had a stake of 20 percent in the project for which it supplied all the land which was basically non-prime land. Long term bonds raised the approximately $1 billion initial investment required for the first improvements.
The anchor tenants were Bharat Forge and Tata Motors. Assured that they will be able to draw their workers from the one-million strong new “Pune DeCi” population, they agreed to build their new modern high-capacity factories at the outskirts of the proposed city. These anchor firms were expanding their output since they anticipated that the economy would grow rapidly as new cities were being built. To build these across India, the demand for trucks and the derived demand for forgings would be high, they estimated. That pattern of increased demand for manufactured goods kept pace with the capacity building of manufacturing facilities around the new designer cities.
With the growth of the cities, demand for labor went up. The labor for construction of Pune DeCi came primarily from the agricultural sector which had become highly productive and therefore released labor in non-agricultural sectors such as services and manufacturing. The building of the city thus provided employment and the wage goods required for the labor came from the high productivity farms around. Thus even though the economy of the region was growing at a very fast rate, there was no inflation.
People started living in the new well-designed apartments in high rises located in well-planned neighborhoods littered with parks and other amenities. Pune DeCi grew rapidly as all sorts of service providers moved in, from schools to shopping arcades to banks to bakeries. Manufacturing kept pace with increased demand and thus provided sufficient incomes to the workers who were able to purchase the products of the manufacturing units. The demand for services went up. Thus demand for education provided employment to teachers, who used their incomes to buy housing and food, which provided employment to the construction industries and farmers, and so on.
It is a long story. The title of the story was “Urbanization Demand Led Economic Growth.” Another way to look at it is to consider it the equivalent of a “Marshall Plan” which the US put together at the end of the Second World War for the reconstruction of Western Europe. By aiding in the reconstruction, the US helped build capacity in Europe. But as a side-effect, it provided employment to Americans within America to supply the goods that Europe needed. And when Europe regained its feet, it was a ready market for American goods and services, and became its biggest trading partner.
India needs a Marshall Plan where the urban part helps construct cities for the rural part.
8. The Future Past
Flashback from 2020
The year is 2020. For nearly 12 years, India has seen an average annual GDP growth rate of over 12 percent more than quadrupling the per capita GDP from US$500 in 2008 to $2000, placing India in the league of middle-income economies. Stark poverty is a thing of the past. In much less than a generation, the population transitioned from being 70 percent rural to being less than 20 percent rural. Agricultural labor is only 15 percent of total labor participation, down from 60 percent in 2008. Farm incomes are six times what they used to be. The $3 trillion economy shows no signs of slowing down.
So how did this seemingly impossible transformation happen, I asked the man on the street.
“The cities. I am hazy about the details but it appears that there was a change of tack. Somehow they figured that they had to think different, think big. They had been stuck in a rut created by a poverty of imagination. The problem was that there was no compelling vision to light a fire in the bellies of the hundreds of millions of people. Then somehow inexplicably they got out of the rut.”
Can you be a bit more specific? What was the turning point? What did they specifically do? What made the difference? Who was responsible?
“I was coming to that. Like I said it was the cities. But that was just the instrument, just the visible part of the transformation. The creation of the cities was the equivalent of the challenge to land a man on the moon. Remember all that talk about an Indian manned mission to the moon? Well, how lunatic was that? Nothing new in attempting to do in 2012 what the Americans had done over 40 years ago. Not just that, with all their trillions of dollars, the Americans themselves thought it was a pointless waste of money to keep doing manned missions to the moon. And yet, impoverished India was willing to spend a few billion dollars repeating that. I ask you, how retarded is that?”
Why drag in all this talk about missions to the moon?
“Actually, think about it for a second. The challenge that JFK presented to the nation was the important bit. Recall his words. Quote: We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too. Unquote. You must read that speech to get a sense of what the articulation of a real vision is all about.
“The bit about doing something not because it is easy but because it is hard is important. And the bit about choosing. The operative word is “choosing” – you choose to do this as opposed to that. The Indians finally woke and decided to choose. It was a choice. They thought through what the options were and then made a choice to do what made the most sense. And the choice they made best organized their resources and their skills.”
But tell me, how did it all begin.
9. A Forest Fire
“It began with a simple realization that no one is as smart as we are. That is, a collection of very smart people is smarter than any one person however smart. Experts and expertise matters, and therefore amateurs and novices cannot be as good in figuring out the choices that confronted them. The collective wisdom of a group of smart people articulated a vision and an associated roadmap.”
Who were they?
“The best. From every field such as industry and business, development, economic growth, urban planning, resource management, science, technology, governance, finance, etc, they got the best from around India and the world. They got the most successful entrepreneurs and business tycoons to add to the group of experts. They got the most respected academics. The challenge to this group was simple: what is the best way for a large economy to transform itself given the resources available? The expert committee took their time and in one year came up with a recommendation.”
How much did it cost, this bunch of experts? And why experts? Don’t we know that amateurs do make amazing contributions?
“That was the problem. India was stumbling around because every amateur and his brother was coming up with vision which with 2020 hindsight we can say was … how shall I put it … amateurish. It had become a cottage industry of sorts. Sit around, write a book, and there was the so-called vision. That changed when a few industry leaders said enough is enough. They got together and put in I think some paltry sum, I guess around $10 million to convene this panel of experts. And then they aggressively sold the goal to the country. Of course, they did not do it for altruistic reasons. They all became fabulously wealthy from the accompanying growth. But that is another story.”
Surely, $10 million is not paltry?
“Actually it is. If you consider that the spending was crucial in generating more than $10 trillion of wealth which would not have otherwise happened, that is what makes it paltry. Do the arithmetic.”
And the recommendation was?
“Like I said, cities. Transform India by building new cities designed and built using the best planning. Just by credibly committing to build these, it engaged every resource available. Recall that India was a very “young” country demographically. The people came from there. The capital came from everywhere. Businesses around the world realized that here was a market that the world had never seen. There was a mad rush to invest in India. On average, US$1 billion a day was the foreign direct investment for the last 10 years. India mopped up a significant part of the investment that used to flow into the US and China. So it was not just internal resources but global resources that flowed into India.”
But why didn’t that happen before?
“India was there at the right time. The demographics were right. But until the credible commitment to actual economic growth was made, there was no reason for investors to invest in India. So when that commitment was made, it galvanized everyone. See, the thing is that wealth is created by human action. But human action is goal directed. Setting a good goal requires deep thinking, not political amateurism. If the person doing the thinking for the country is an illiterate scamster, you are in trouble.
“But if skilled people put their minds together and set the agenda, then the goal is interesting enough, difficult enough, rewarding enough to channel all sorts of resources to its fulfillment. It creates it own dynamic, like a forest fire. The more it grows, the more resources it sucks out from the surrounding and grows even more. The wind feeds a forest fire while the same wind would snuff out a candle. To make use of the winds of change, we needed a forest fire, not a candle which we were protecting from the wind that far.”
So how does one start a forest fire?
One Final Word
I am not under any illusion that what I have been advocating will ever see the light of day. This is an essay I wrote for my own edification. Indian leaders are too busy dividing up the tiny little pie, and worrying incessantly which favored ethnic, religious, or socio-economic group would be best wooed for their votes. Some of them appear to believe that adding more taxes is the best way to solve problems. Education not happening? Why, just add a tax here and a cess there, and it will magically happen! They have neither the time nor the inclination, or the required training to ever analyze what went wrong and why, and what should be done differently. They make a living talking about and spending money on development. Like the fish, they are blissfully unaware of what water is.