Poor Rich Cities

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

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

City plans and economic reforms go together, and the essence of the besturban policy is to deliver municipal services efficiently without thedistraction, as one commentator has noted, "of trying to attract specificclusters, creating global city-states, or attempting to attract knowledgeworkers without establishing an environment where businesses want to invest andexpand."

The economist Alfred Marshall first recognized that cities exist because ofeconomies of scale and the indivisibility of firms. This thesis has been furtherelaborated by recent research: the availability of workers in a metropolitanarea - particularly specialized workers in accounting, law, advertising andother technical fields - reduces costs for businesses. Urban agglomerations comeinto existence because of these economic advantages, not because governmentsoffer special incentives for the migration of industries or workers toparticular areas. Marshall noted that cities reduce the ‘cost of moving ideas’.Another implication is that "cities, not corporations, are at the centre ofcompetition. If we are to succeed in a more global world, it is not howefficient or competitive our firms are, but whether Toronto can compete withBarcelona, Milan, or Tokyo."

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

A few months ago, Finance Minister P. Chidambaram stated, "the creation ofwealth is the highest pursuit of mankind". Speaking at a function to honourthe 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 haschanged. Unless wealth is created, it cannot be distributed. Without wealthbeing distributed, poverty cannot be wiped out."

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

The city of New York seemingly teems with millionaires today, and the verydefinition of the super-rich has undergone a sea change. Having $1 million inassets in 2001 placed you in the top 7 per cent of families in the US, but inNew York it meant you own an "average co-op" in Manhattan outright. StuartBecker, an adviser for high-net-worth individuals, observes that, "In the olddays, a millionaire was someone who had a million dollars. Today its someone whomakes a million dollars a year". Bill Fuhs, president of the New York PrivateBank and trust, estimates that in 2001, there were about 27,000 families in theU.S with a net worth of over 30 million and about 10 percent of them lived inand around New York. And as the superrich created ‘their own ecosystem’,they forged a sophisticated $488.8 billion economy in the city, driven by highlyspecialized services and the fullest exploitation of opportunities.

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

Contrast this with those Indian cites that are flush with millionaires andthe dismal conditions that their service staff live in. All around, we seemanifestations of archaic and falsely protective laws that end up doing moreharm than good. Our cites carry the burden of rent laws that have severelycrippled the development of reasonable and healthy real estate, of an abysmalfailure to prevent irregularities of any kind be it in ‘commercialization of‘residential’ areas, an inability to counter the takeover of vast tracts ofvacant government land by people desperate for a roof over their heads, or afailure to enforce taxes and charges for services that a citizen must rightfullypay for the privileges of living in a modern, civilized city. While some of thislatitude appears to benefit the poor - they are allowed to save the roofs overtheir heads - they actually constitute an indirect subsidy to the rich, allowingthe latter to hire domestic staff, low-skilled services, and industrial andconstruction labour at wages that exclude the possibility of a decent shelterand minimum living standards.

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

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

The writer is Convener, Urban Futures Initiative