Pakistan’s urban transition

November 23, 2019

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The writer is based at the University of Oxford.
The writer is based at the University of Oxford.

VIRTUALLY every country which has economically advanced in modern history has done so while becoming urbanised. Pakistan’s path can be no different; to prosper, we need well-connected, vibrant, and liveable cities that bring people and firms together in dense environments.

But such cities don’t emerge naturally; they are the result of policy actions. New York City functions effectively because of its expansive infrastructure, including an over 10,000 kilometres-long elaborate water supply system.

Building and maintaining such infrastructure isn’t possible without effective governance

structures. Take New York mayor Fiorello La Guardia’s example. In the 1930s, he created a cross-partisan coalition to replace a corrupt network which had controlled the city for nearly eight

decades. Over his three terms, he expanded the use of competitive exams to recruit public officials, adopted new administrative practices such as centralised purchasing to reduce corruption, and help set up a public agency to provide urban housing.

If La Guardia and others like him hadn’t taken measures to modernise city governance, New York would look very different today. Such investments have paid off, as demonstrated by the fact that the city has a per capita income that is 172 per cent higher than the national figure.

Our policymakers have failed to understand the importance of city governance.

Pakistani policymakers have failed to understand this importance of cities. Small wonder the people who move to cities in search of prosperity face poor living conditions.

If Pakistan reverses this and manages its urban transition effectively, it can unlock significant economic gains. By bringing people and firms closer, cities provide a dense market for products and workers, where both can focus on interdependent activities. Because of this inter-dependence, cities allow people and firms to learn from each other, fostering creativity.

Think about it this way: if you’re in a city big enough, you can specialise in a narrow but effective set of skills and find a firm interested in hiring those skills. After work, social interaction at cafes or restaurants allows you to learn from others. If you change your job (which is easier in a big city), you take your skills to your new employer, enabling firms to learn from each other.

On a national scale, Pakistan can transform its economic structure by moving people from agriculture, which is generally less productive as it requires more people to produce relatively little output, to manufacturing and services, which are primarily undertaken in cities. But simply moving people to cities is not a condition that unlocks prosperity; people could still move to cities and find themselves in unstable, informal jobs, unable to benefit from density. Some katchi abadis in Karachi have housed people for generations, but they remain poor. Nationally, one in eight urban residents lives in poverty.

This is where effective public policy comes in. To benefit from urbanisation, policy needs to expand the good things about urbanisation such as density and connectivity; and reduce the downsides of urbanisation: crime, pollution, and congestion. New York’s Mayor La Guardia understood this. Backed by federal assistance, his administration oversaw the rapid construction of bridges, highways, parks, and houses, transforming the city’s physical infrastructure.

We’re several steps behind 1930s New York; instead, Pakistan needs to first focus on building three first-order conditions:

First, build local urban governments which are accountable downwards to the people, not upwards towards provincial or federal governments. Pakistan’s record on this is abysmal: when such governments have existed, their purpose has not been to decentralise control. Take Karachi where the reverse has happened; more power has been taken away from the local government and fragmented between various provincial agencies, making accountability impossible.

Punjab doesn’t do much better. In Lahore, provincial agencies provide vital services like water and sanitation. The 2019 local government law might change this but it’s anybody’s guess when elections will be held and how much the law will be implemented by the provincial government, which stands to lose power. There is the possibility of a repeat of what we’re seeing in Islamabad, where the elected Metropolitan Corporation has been in a tug of war with the unelected Capital Development Authority over the control of the city — a battle which now has now gone to the courts.

Ideally, urban areas need to have a single elected urban government with clear authority to provide services like housing, water and sanitation, and local transport.

Second, to pay for our urban transition, we need a robust urban finance base. This can be done by allowing local governments to raise taxes, mainly from land and property (as land cannot be moved between cities). Over time, if these taxes can be tied to visible service delivery, accountability will improve.

Currently, Pakistan is using this revenue source ineffectively. Provinces have their immovable property tax acts but their application is far from effective. For starters, they are often based on outdated valuation measures or proxies. Such is the case in Punjab, where a rigid annual rental value is used to levy this tax. Only now, with help from the World Bank, is the Sindh government planning to revaluate properties.

This leads to the third point, improving urban land rights. Land is a critical feature of urbanisation: people need land to build houses, firms need to locate themselves where they can get customers, and the government can use appreciation of its value to finance public investments.

Ideally, land rights need to be transparent and secure, so everyone knows who owns what. Unfortunately, land in urban Pakistan is regularly exposed to competing claims. Think how many times you have heard of people investing in real estate only to land into uncertainty. In Karachi, as Arif Hasan has argued, land is used as a political tool. This is not what efficient land markets look like.

These are some fundamental policy directions. Our urban transition is already well under way and will occur regardless of what the government does or doesn’t do; official statistics claim that 36pc of Pakistanis live in ‘urban’ areas, but the World Bank puts this at around 55pc. Whether it is 36pc or 55pc, we’re ignoring the proactive public policy needed to manage this transition properly, the consequence of which will be felt for generations to come.

The writer is based at the University of Oxford.

Twitter: @ShahrukhWani

Published in Dawn, November 23rd, 2019