Just because we have made a mess of urban planning, we should not jump to the conclusion that urbanisation is bad. The World Bank?s World Development Report (WDR) for 2009 was titled Reshaping Economic Geography. It made the point that production is concentrated in big cities, leading regions and wealthy countries. In that sense, growth is inherently unbalanced. Within countries, this unevenness in space is evident in the concentration in towns and cities. It is linked to rural-urban transformations and a transformation from agriculture to industry and services. The pursuit of equity does not mean hoping for balanced growth in the spatial sense. Instead, goals of equity allow this process of unbalanced growth, but simultaneously ensure that regions that have been bypassed, progressively become integrated. Stated differently, there will always be a centre and a periphery. The right question to ask is whether the distance between the centre and the periphery is being reduced over time.

There is convincing theoretical and empirical literature establishing the case for agglomeration. Since there is still a lot of emphasis on balanced growth and resistance to urbanisation, it is worth recapitulating these arguments briefly, particularly because they are based on a recognition that markets are imperfectly competitive and therefore, there are economies of scale and scope. Both production and distribution have economies of scale and therefore, agglomeration is necessary to provide access to markets for goods, services, labour, technology, information and ideas.

The table, adapted from WDR, shows what it calls a dozen economies of scale. These economies of scale are not neat water-tight compartmentalisations and one form may have spillover effects on another. Nor is the jargon and taxonomy in column 1 of the table important, except for conceptual purposes. In any event the examples, in column 2 of the table illustrate what is meant, are self-explanatory and make eminent sense. However, just so it is clear, internal economies arise from a larger plant size, so that fixed costs are spread better. Localisation economies result from a large number of firms in the same industry and in the same place. Urbanisation economies arise from a large number of different industries in the same place. Agglomeration economies go beyond size and focus on interactions. To repeat, theoretical contributions by a large number of eminent economists have changed our perspectives on urbanisation, agglomeration and industrial concentration. The cross-country empirical data also validates this.

While on the theory, let us mention Paul Romer, a respected theoretical economist, particularly identified with points 7 and 11 in the table. He used to be a professor in Stanford University but has resigned and now become an entrepreneur to propagate the idea of charter cities. Stated simply, a charter city is one where the city?s governance structure is defined by the city?s own charter document and not by other forms of legislation. Indeed, charter cities can be exempted from national, provincial or municipal legislation. The city?s charter can be modified by a majority vote of resident citizens. It isn?t just the state of California that permits such charter cities. Lubeck in Germany used to be one. Addis Ababa in Ethiopia is a charter city. Madagascar has been thinking of creating two such charter cities. The Romer entrepreneurial idea is to create such new charter cities, along the coasts of developing countries. Since governance is often at a discount in developing countries, developing countries will provide the land, while developed countries will provide the governance, a la Hong Kong, before its integration with China.

To return to the urbanisation issue, in 2008, the world crossed a threshold. For the first time in the history of human evolution, the world?s urban population crossed 50%. A critique of the form that urbanisation takes is not a critique of the phenomenon itself. The table tends to concentrate on production and distribution. However, consumption also tends to be higher in urban areas. The availability of services is better. The quality of life is better.

A quote from WDR is worth bearing in mind. ?Consumption in urban and rural households in a broad cross-section of developing countries shows that people with similar observable characteristics enjoy higher consumption attributable purely to their urban location. The gains range from 2% in Hungary, the Kyrgyz Republic, and Poland, to 30% in Costa Rica, Ethiopia, India, Romania, and Tanzania, and to more than 80% in Angola, Bolivia, and Rwanda.?

Indeed, in the future, urbanisation is bound to increase. 70% of the population in Europe, North America and Latin America is already urban. Urban populations are still relatively low in Africa and Asia. It is estimated that 95% of the world?s growth in urban populations in the next four decades will be in developing countries. This must be planned for. And it is important to stress the point that one shouldn?t look at rural/urban as a neat dichotomy. Nor is urbanisation about mega-cities, defined as ones with populations of more than 10 million.

A UN Habitat report categorises three Indian cities as mega-cities?Mumbai (18.98 million), Delhi (15.92 million) and Kolkata (14.79 million). Extrapolating to 2025, the Indian mega-cities will be Mumbai (26.39 million), Delhi (22.50 million), Kolkata (20.56 million) and Chennai (10.13 million). In countries where urbanisation has been better planned, clusters of villages become integrated into smaller towns, specialising in agro-based products. These are integrated into larger towns, typically specialising in manufacturing. These, in turn, are integrated into mega-cities, specialising in services and knowledge-based enterprises. Understandably, this integration is a function not only of transport connectivity, but also government policies that facilitate the integration. For mega-cities, it is impossible to think of greenfield development. But greenfield urbanisation may be possible for the smaller towns.

?The author is a noted economist