Monday, August 22, 2005

Shankar Acharya:A tale of three cities


Shankar Acharya / New Delhi August 23, 2005

A couple of weeks ago I revisited Dhaka after a gap of many years. I was frankly astonished by the bustle and dynamism of this vibrant, fast-growing metropolis of 14 million inhabitants.

It was a far cry from the provincial town of the early 1970s that had lingered in my memory. Nor did I please my relatives and friends in Kolkata, on the journey back, by commenting on the contrast between Dhaka’s commercial and construction boom with its gleaming new towers versus the relative stagnation and crumbling old buildings of Kolkata.

That Kolkata seemed like a commercial backwater after Dhaka was a distinctly uncomfortable reversal of the comparison that had prevailed for over two centuries.

Of course, there are many reasons explaining the different trajectories of these two populous Bengali metropolises. In the 34 years since Bangladesh’s independence, Dhaka has gained enormously from being the nation’s capital city, favoured by endless government construction contracts and other forms of government patronage.

In contrast, Kolkata lost her political privileges with the shift of the British imperial capital to Delhi way back in 1912. Then came the Partition of 1947, which, at one stroke, idled Kolkata’s jute mills, extinguished the property rights of the city’s zamindars, and spawned a flood of impoverished refugees from East Bengal.

To make matters worse, the ill-conceived freight-equalisation scheme of Nehruvian, socialist planners thoroughly undermined the comparative advantage of steel-based industries in the Bengal-Bihar region and led to the “sickening” of numerous Kolkata-based engineering industries.

Kolkata’s accumulating industrial-commercial woes cannot be all attributed to acts of high (or low?) politics and stupid central planning beyond West Bengal’s control.

The Naxalite insurgency of the early 1970s and three decades of deteriorating investment climate under the Left Front government led to massive capital flight (often to western India) and a highly unproductive labour-industry culture.

It is precisely during these three recent decades that Dhaka’s industry (especially garments and textiles) has come of age, unconstrained by Kolkata’s politically strong labour unions and dysfunctional labour laws.

In 1980 Bangladesh exported less than a hundred million dollars of clothing and textiles. Last year such exports were close to six billion dollars! Much of this thriving new industry is located in and around Dhaka, pumping zillions of takas into the city’s economy, fuelling a sustained retail boom, driving property prices skywards and choking the city’s streets with lakhs of new cars.

Yes, wages of garment workers are often low and job security is limited. But it’s a lot better than available alternatives. And with nearly 90 per cent of such workers being female, there is a major process of female empowerment under way.

When coupled with Bangladesh’s justly renowned revolution in micro-credit institutions in rural areas and large-scale NGO-led initiatives in education and health, the dimensions of social transformation seem decidedly more impressive than what has happened across the border in West Bengal. New studies of trends in education, health, nutrition and demographic parameters support this impression.

Dhaka’s headlong growth is not without problems. Those familiar with South Asian cities will easily recognise the usual litany of woes: unplanned urban development, unscrupulous builder lobbies, mounting traffic congestion, inadequate water and sanitation infrastructure, power shortages and (perhaps more than in other South Asian metropolises) rising urban crime.

Municipal finance and governance is probably even weaker than in Kolkata or Mumbai, though the weaknesses are partially masked (as in Delhi) by the favouritism (in finance and other support systems) extended by the central government.

This tale was supposed to cover three cities. Well, two fortnights ago, on the fateful Tuesday of July 26, I joined (involuntarily) lakhs of Mumbaikars in wading through waist-deep water (or should I say sewage?) during the floods which swept the (always) far-fetched dreams of rivalling Shanghai down clogged city drains and potholed, water-logged streets.

Much has since been written on what needs to be done to save Mumbai, including: clearing the natural waterways of illegal constructions, improving non-existent disaster-management systems, revamping municipal governance and allocating central and state funds to improve the city’s dying urban infrastructure.

These remedies are sensible enough. But perhaps they neglect two broader themes which are critical for the health of South Asian cities. A large part of Mumbai’s urban malaise stems from the decades-old demise of her textile industries.

True, various service activities have flourished, including finance and commerce. But nothing has quite replaced the “blue-collar” workforce of Mumbai’s mills. It’s similar to the problems of Kolkata, where no major labour-using industry has developed to replace the economic base generated by jute mills and engineering industries.

The contrast with Dhaka is striking. There, the millions of jobs created by the burgeoning new textiles/garments have provided a large part of the sinews for urban growth.

Indeed, the same is true for the flourishing urban centres of coastal China and South-east Asia: the growth of prosperous cities is intimately linked with the rise of labour-intensive industries.

In this crucial domain, our archaic and inflexible labour laws continue to choke the creation of millions of good jobs in labour-using industries. India has hardly 5 million formal sector jobs in manufacturing out of a labour force of over 350 million!

In contrast, Chinese factories employ well over 100 million workers (over 150 million by some estimates). It’s these blue-collar jobs that can provide the economic life-blood of healthy urban growth, whether in Kolkata or Mumbai.

So, reform of our labour laws is necessary not only to stave off the real prospects of unemployment nightmares, but also to regenerate our failing metropolises.

The second broad (and neglected) theme for urban regeneration in India is the revamping of municipal property tax systems (and the associated reform of rent control laws). It’s a dull subject, but it lies at the core of successful cities (Dhaka, you need this too).

Cities need urban infrastructure and the most durable way of raising such funds is to tax equitably those who own the city’s residential and commercial buildings and enjoy the benefits of urban infrastructure.

Disaster-triggered subventions from central and state governments are welcome but they are not a reliable source of long-term revenue in the way that a well-functioning property tax system is.

So my two-fold mantra for urban regeneration in India is reform of labour laws and property tax systems. Hello, is anybody listening?

The author is Honorary Professor at Icrier and former Chief Economic Adviser to the government of India. The views are personal.

No comments: