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Has Punjab just taken a step towards unlocking the potential of its cities?

The Punjab Local Government Bill 2019 aims to establish 9 metropolitan corporations for almost all major cities.
Published May 10, 2019 05:00pm

There is no path to prosperity which does not pass through cities. Absolutely none. Every country which we today call an advanced economy — like Britain, the United States or Japan — has urbanised as part of their path towards economic prosperity.

This usually meant that these countries experienced rapid economic growth mainly driven by higher productivity unlocked by industrialisation, and during that, more and more of their citizens moved to cities. So for a long time, economists thought that urbanisation happened alongside rising per capita income.

And perhaps that trend made managing these cities more feasible, because growth meant governments had more ability to raise revenue and invest that revenue in infrastructure which cities desperately need to run effectively. London was able to invest in an underground rail system; New York built an elaborate system to deliver water to its residents “that goes as deep as the Chrysler Building is high”, as David Grann once put it.

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But increasingly, urbanisation no longer guarantees prosperity in itself. This is due to the trend experienced by many postcolonial countries, where urban populations have grown — and continue to do so — without being accompanied by the rise in per capita income. Urbanisation without significant growth, you might say.

This means that more and more people are living in cities but, increasingly, cities don’t have the resources to build the institutions and infrastructure people need to benefit from urbanisation — turning urbanisation, a potential, into a challenge.

Pakistan is a case in point. Our cities are growing, but we have consistently failed to allow them to govern themselves properly. And here lies the tragedy. If we can govern our cities effectively, they can unlock the kind of prosperity we have never experienced.

The opposing forces in which cities exist

Cities are subject to two kinds of opposing forces. Understanding these can allow us to comprehend the challenge of governing cities better.

The first is a good force, which makes cities worth living in. They’re mainly driven by what economists call the benefits of agglomeration economies. The term makes it sound more complicated than it is: it merely refers to the benefits of people and firms being close to each other.

Think about them in this way: when people are located close to each other, it allows the unlocking of two interconnected forces.

The first is the ability to specialise, allowing people to build their careers on a narrow set of skills thanks to the size of the city. You can be a lawyer focusing simply on mergers of firms and, because you live in a city large enough, you can work in a firm which demands that skill.

At mass, specialisation allows people to have better matching of skills with firms, with people able to invest in narrower — but more effective — skills which can reap considerable returns.

The second is knowledge spillovers, something which comes out of scale and specialisation. When people are close to each other, it allows them to share ideas and information. In cities, people move from one firm to another, taking their skills with them and sharing them with others. They meet at cafés and talk about new ideas and might even start new firms.

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Silicon Valley is a good example of this. If there is one industry you would expect to work without clustering its employees in a single office, surely it is one which works on producing technology.

But technology firms still cluster a large number of their employees in Silicon Valley, and many people who want to work in the technology sector want to move there. This is because firms benefit from having a large workforce with specialised accumulated knowledge, and people benefit from being able to leverage their skills for jobs they want and learn new skills from other people.

Clearly, they benefit from being close to each other.

But there is also a bad force, which makes cities less than great. If people are close enough to give you a new idea, they are close enough to make you sick, stab you or just come in your way and make your life unbearable. (Edward Glaeser wrote something to this effect in the Triumph of the City).

This is mostly due to two reasons. First, congestion. When cities don’t have the infrastructure necessary to connect a large number of people, congestion occurs. Cars are stuck in traffic and people are unable to move smoothly due to lack of public transport. This disconnects people from each other and undermines those good forces.

Second, affordability. Cities are usually more expensive than the countryside everywhere. This is because, in the best of cities, people have higher incomes which drive up the cost of housing, food and other goods and services.

But in developing countries like Pakistan, the problem is made worse by lack of infrastructure which forces people to spend more on moving around, for traders to bring in food and for people to pay for housing, which there is often a deficit of.

Pakistan’s urban landscape

With this largely theoretical background, let’s come to Pakistan. Here, I want to make a few points which embody much of our urbanisation experience, although this is hardly exhaustive.

Let’s start by recognising that we’re an urban country. Let’s not kid ourselves anymore. Official statistics claim that about 36 per cent of Pakistanis live in urban areas, but the World Bank estimates that a majority — about 55pc — of the population lives in areas with urban characteristics.

This is in part because we need to understand that, when we say cities, we really mean metropolitan areas.

These metropolitan areas are part of the larger trend of our urbanisation which is incredibly low-density. Our cities don’t resemble the high-density ones in the advanced countries. Instead, people live in sprawling metropolitan areas which are costly for people to move around in.

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This, as the World Bank rightly says, makes our urbanisation hidden: people are increasing living in peripheries of major cities. Some of these metropolitan areas are joining together, forming mega-metros. This is the case in Punjab, where there is a continuous belt of people living in a large swath of area connecting Lahore, Sahiwal, Faisalabad and Gujrat into a single mega-metro.

This also feeds into unequal delivery of services. People who live in the core of the city or wealthy suburbs might benefit from better provision of services like policing and transport networks — and those who live in peripheries don’t.

Despite this, our cities are already incredibly important to our economy. They generate about 78pc of the national GDP and 10 of our largest cities produce 95pc of federal government revenue (Karachi alone accounts for the majority of this). They’re already the engines of our economy.

Institutional architecture for effective cities

So, what do we do to unlock this urban potential? We need an overall institutional architecture which embodies three principles.

First, the institutional architecture needs to allow for the independence of urban governments. Cities are complex and higher complexity makes it harder to undertake policy decisions away from the context of the city. Because of this, we should benefit from an independent layer of government at the city-level.

While there will always be some coordination and interdependence required by each layer of government, by independence I mean where accountability runs downwards to the residents of the city, not upwards towards provincial or federal governments.

We have often done the opposite. Motivated by the desire to undermine the national political elite, Musharraf introduced this layer, but it was marred with various problems.

For one, it excluded political parties, which allow easier collective action and without which the costs of cooperation — theoretically — rise. As Jean-Paul Faguet and Mahvish Shami put it: “it is notable that local government died a quiet death in Pakistan, in full view, lamented by no one.”

Politicians who have followed Musharraf didn’t want to decentralise power, or if they did, they did an excellent job at hiding the fact.

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But Punjab might have made a departure from this trend by adopting a Musharraf-like model in the Punjab Local Government Bill 2019, with some significant changes. Punjab has established nine metropolitan corporations in the province for almost all major cities. (I’m specifically restricting the analyses to metropolitan corporations here.)

The new law, if implemented, would pave the way for a directly-elected head of metropolitan corporations, supported by a cabinet and checked by a locally-elected council. The council members would be elected through proportional representation lists which, unlike the Musharraf system, empower political parties at an unprecedented scale.

But true independence of this layer is going to depend on various factors, including the degree of interventions made by the provincial government into the areas which have been decentralised to these corporations, especially as the law provides the provincial government enough wiggle room to interfere into local affairs.

For example, the provincial government can give policy directions and fix objectives for the areas decentralised to the local government. This could be used to undermine the urban government's independence.

Another source which could possibly undermine this independence is the role of chief officer, a bureaucrat who will be appointed by the provincial government and has been assigned significant administrative powers in the local government under this law.

Second, we need an institutional architecture which empowers urban governments by providing sufficient control over key local policies and the ability to raise sufficient local revenue.

Generally, policies over local transport, waste management, land use and housing need to be decentralised to cities. Punjab’s new law does decentralise power over these areas to the metropolitan governments (with the exception of housing).

But how effective this empowerment is in practice will come down to the province's willingness to radically restructure the bureaucratic apparatus it has built over the decades. This is correctly pointed out by Umair Javed as a litmus test for the success of this law.

Another dimension to this is money. Control means little if the urban government isn’t able to pay for it.

Some of the revenue will come through the provincial or federal governments and these fiscal transfers need to be stable over time. The new law, for example, provides this stability by setting a floor of minimum transfers (about 26pc of the province's general revenue receipts, to begin with) and mandates a formula to be set up by a finance commission to divide this pool for every four years.

However, a significant proportion of the revenue can be raised by the cities themselves. This is mainly through what urban economists call land-value capture.

As the work done by the International Growth Centre’s Cities that Work initiative shows, when cities grow, the value of land and properties often increases significantly. This provides an opportunity for urban governments to capture some of this value — for example, through taxes — and invest it in the infrastructure they need.

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Punjab’s new law provides, in my view, ample mandate over raising revenue locally, including the tax on urban immovable property.

It goes further and stipulates that the province consider the financial capacity of the local government while making the transfer. It is unclear as to how this is will be translated into exact policy, which will depend on the specific formula adopted. But if the province is able to incentivise cities to invest in their independent financial capacity, it would go quite far to empower urban governments in Punjab.

Third, we need institutional architecture that makes cooperation between various urban governments conducive. This goes to my earlier point of urban populations expanding beyond jurisdictions of a single overreaching local government.

Decentralising power often requires cities to coordinate policies among various their neighbouring governments or with lower-tier bodies, such as neighbourhood councils — like joint provision of transport services for allowing people to move around the metropolitan area, but only the legal jurisdictions.

Punjab’s new law makes extraordinary provisions for this. An entire chapter is dedicated to cooperation between local governments (Chapter VII to be particular) which allows joint authorities to be set up for the provision of one or more of such public services.

Going forward

On all these three fronts, Punjab’s new law does a decent job in establishing an institutional framework for better cities.

But there are various factors which will determine if cities can leverage this framework, particularly whether there is enough political commitment to maintain this framework and power is distributed accordingly by the provincial political and bureaucratic apparatus.

We need to keep our eye on the ball. Cities which are operated by independent and empowered local governments, who can cooperate with each other, can provide context-specific, pragmatic policy solutions.

Going forward, the metropolitan corporations will need to build local capacity and institutions which make them genuinely responsive to the jurisdictions they govern.

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