Chronicles The Wealth of Cities

The Indian city is a behemoth and has been lumbering forward on a set of staid laws laid down at, or even before, Independence. The evolution of the Indian city remained at a slow and unhindered pace for decades, when suddenly a little ushering in of urban reforms, a loosening of restrictive controls, saw the hidden potential of the cities let loose with an alacrity and speed that soon seemed unstoppable. We now see city administrations at a loss to tap these unleashed forces to their maximum capacities, and today we are witness to more and more urban governance manifest itself in its absence rather than its presence. Weak and vacillating governments abdicate responsibilities and powers, and institutions such as the judiciary have to step in and execute tasks and issue orders for even simple and mundane duties like clearing the roads of cattle.

The need for reforms in urban governance has been acutely felt for long and there has been much talk of empowering local urban bodies. Though the great cities of India manage to generate vast quantities of wealth yet they have about them an air of decay and disorder.

City plans and economic reforms go together, and the essence of the best urban policy is to deliver municipal services efficiently without the distraction, as one commentator has noted, "of trying to attract specific clusters, creating global city-states, or attempting to attract knowledge workers without establishing an environment where businesses want to invest and expand."

The economist Alfred Marshall first recognized that cities exist because of economies of scale and the indivisibility of firms. This thesis has been further elaborated by recent research: the availability of workers in a metropolitan area - particularly specialized workers in accounting, law, advertising and other technical fields - reduces costs for businesses. Urban agglomerations come into existence because of these economic advantages, not because governments offer special incentives for the migration of industries or workers to particular areas. Marshall noted that cities reduce the 'cost of moving ideas'. Another implication is that "cities, not corporations, are at the centre of competition. If we are to succeed in a more global world, it is not how efficient or competitive our firms are, but whether Toronto can compete with Barcelona, Milan, or Tokyo."

In Law, Liberty and Livelihood, Parth Shah and Naveen Mandava document the obstacles in the way of any Indian who wishes to start a business in one of India's big cities-"Entrepreneurs can expect to go through 11 steps to launch a business over 89 days on an average, at a cost equal to 49 per cent of gross national income per capita". This is contrasted with two days for Australia, eight for Singapore and 24 for neighbouring Pakistan.

A few months ago, Finance Minister P. Chidambaram stated, "the creation of wealth is the highest pursuit of mankind". Speaking at a function to honour the country's most respected companies, he added, "About 15 to 20 years ago, wealth-creation was considered a sin, even a crime… Thankfully, all that has changed. Unless wealth is created, it cannot be distributed. Without wealth being distributed, poverty cannot be wiped out."

The arguments are valid, but not when we have the phenomenon of the rich enjoying a lifestyle, but refusing to pay the price of the privileges they enjoy. Today, the rich are the primary beneficiaries of a wide range of subsidies, including those on water, electricity and many food items, for which they can well afford to pay a full price. The prescient Finance Minister would do well to repair these anomalies and create a truly wealthy city, where the rich are given fullest support in the creation of wealth, while the poor are able to avail of opportunities to escape the clutches of poverty.

The city of New York seemingly teems with millionaires today, and the very definition of the super-rich has undergone a sea change. Having $1 million in assets in 2001 placed you in the top 7 per cent of families in the US, but in New York it meant you own an "average co-op" in Manhattan outright. Stuart Becker, an adviser for high-net-worth individuals, observes that, "In the old days, a millionaire was someone who had a million dollars. Today its someone who makes a million dollars a year". Bill Fuhs, president of the New York Private Bank and trust, estimates that in 2001, there were about 27,000 families in the U.S with a net worth of over 30 million and about 10 percent of them lived in and around New York. And as the superrich created 'their own ecosystem', they forged a sophisticated $488.8 billion economy in the city, driven by highly specialized services and the fullest exploitation of opportunities.

Researchers estimating the influence of the superrich on job creation calculate that the number of New Yorkers with more than $500,000 in adjusted gross income was about 30,000, and that, on an average, each spends $200,000 a year on services locally; this would imply that the top one per cent of earners supported about 153,000 service jobs. One hedge fund manager who spends $1million on services - a driver and house staff, investment management and real-estate brokers, restaurants and psychotherapists - probably sustains 25 livlihoods. Even the public sector owes a lot to the superrich. About one per cent of New York City tax-filers in 2000 paid enough to the city ($2.338 billion) to support the wages of roughly 50,000 government employees. Conventional service professions also prosper. A number of jobs that pay middle class wages in virtually any other region earn six figure incomes in New York. New York Stock Exchange Director, Dick Grasso, made headlines when it was revealed that his secretary at the New York stock exchange earned $240,000 a year , while his two drivers took home $130,000 each. But others who had incomes comparable to Grasso's were not surprised - they were paying their professional and domestic help similar wages.

Contrast this with those Indian cites that are flush with millionaires and the dismal conditions that their service staff live in. All around, we see manifestations of archaic and falsely protective laws that end up doing more harm than good. Our cites carry the burden of rent laws that have severely crippled the development of reasonable and healthy real estate, of an abysmal failure to prevent irregularities of any kind be it in 'commercialization of 'residential' areas, an inability to counter the takeover of vast tracts of vacant government land by people desperate for a roof over their heads, or a failure to enforce taxes and charges for services that a citizen must rightfully pay for the privileges of living in a modern, civilized city. While some of this latitude appears to benefit the poor - they are allowed to save the roofs over their heads - they actually constitute an indirect subsidy to the rich, allowing the latter to hire domestic staff, low-skilled services, and industrial and construction labour at wages that exclude the possibility of a decent shelter and minimum living standards.

Worse, such practices create a city that, over time, becomes progressively less attractive to the rich - and consequently to industry, to the service sector, and to economic growth - leading, eventually to the decay of the city.

It is the economic spur that gives rise to the cultural and civilizational roots of a city, but unless economics creates such a cultural and civilizational basis, decay is inevitable. A city must not hinder the processes of wealth creation, and the spin-offs of that wealth must be wisely reinvested in the city, allowing it to grow and develop into a magnet that can attract the very best from across the world.

Chitvan Gill

Published in The Pioneer, January 26, 2006

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