Column: Cities deserve better deal on governance

Written by Michael Walton | Michael Walton | Updated: Feb 25 2010, 03:37am hrs
Indias cities are the Achilles heel of her growth dynamic. This is not because of resources nor because of slums. The fundamental problem lies in overall city governance. Unfortunately there are powerful interests supporting the existing system.

There has, of course, been good news on growth. Despite the current focus on inflation, the most remarkable macroeconomic fact of the past year has been the resilience of growth. In addition, recent commentary has highlighted the striking shifts in the ranking of Indias largest firms and the emergence of major new corporates in the past two decadesone manifestation of widespread churning, entry and restructuring of this period. Its useful to put this into the context of two important sets of ideas on growth dynamics. The first is that innovation and creative destruction are the primary drivers of long-term growth. This occurs when economic institutions encourage change, including the birth and death of firms and activities, as opposed to the retrenchment of established groups and patterns of production.

The second concerns cities. In a presentation in New Delhi this January, Harvard economist Edward Glaeser argued that cities matter because of the concentration of talent, the production of ideas and the fostering of innovation. Despite the death of distance that was supposed to occur with falling transport costs and the rise in communication, cities are flourishing. And the ones that are doing well as those that have been able to build upon such concentrations of ideas and talent. Boston has reinvented itself as a hub of technology, medicine and finance; Milan has gone from traditional weaving to fashion; by contrast old manufacturing centres of Detroit and Turin have stagnated.

How does India look through these prisms The churning and restructuring of the past 20 years is a good indicator that the creative-destructive process is alive and well in much of the business sector. And cities have been changing: Mumbai with the decline of textile mills and the rise of finance and films, Bangalore with the rise of IT, and so on. The spatial economic analysis of Indian industry shows the continuing power of firms locating in proximity of other firms in cities.

Yet cities are a problem: as everyone living in India knows, there are serious issues for both productivity and livability, owing to congestion, problems over land, and big deficits in basic services, especially in slums. Business wealth has risen and people are moving to cities for work, but public good provision is failing. This could suffocate long-term growth via the direct effect of infrastructure bottlenecks and via indirect effects if cities are not conducive to melting pots of ideas, people and skills.

But the lack of infrastructure, problems of services and informality are proximate conditions. There are, of course, huge needs for better services for both production and living for all. (And getting rid of slums is not the right way to think about that question, but thats another story.) The real issue lies in governance, in the fact that cities do not have the political institutions and administrative structures to respond to the needs and demands of citizens and businesses, in short to become inclusive and dynamic cities. And problems in governance reflect entrenched institutional and political structures.

Two features of the malaise stand out. First the state, not the city, is the dominant locus of political power and management of resources. Cities suffer an effective democratic deficit at the city-wide and local levels. Second, misplaced regulation has made illegality and informality pervasive, and has made land absurdly expensive in metros. Mumbai is an extreme with its crazily low restrictions on built floor to area ratios (roughly height restrictions).

Land is central. Control over access to land is a wonderful source of political control and a nexus for corruption. It empowers the land-related private sector, as opposed to long-term business interests. Insecurity in slums makes it easy for politicians to offer patronage for political support, undercutting the deepening of real democracy.

The problem is that this looks like a functioning political equilibrium, in other words a situation in which the interests of state and current local politicians, private land interests and state administrators favour the status quo, even though this is dysfunctional.

The JNNURM has fine aspirations for policy change on land and participation. But it looks more like a centrally-sponsored scheme with largely ineffective conditionality than a mechanism for building effective city-level institutions.

It would be great to have elected mayors, deepened local participation, effective city-based long-term planning, and a variety of fora for inclusion, debate and dispute resolution of all interests, from big business to migrants. But current forces are arrayed against this happening. This will be a growing problem for growth.

The author is at the Harvard Kennedy School and the Centre for Policy Research