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Economics of urbanisation

May 06, 2013

WE ought to care about urbanisation because it will shape our lives, for better or for worse, and often in surprising ways.

An obvious starter is that all developed countries are predominantly urban. Of course one can ask whether it was development that led to urbanisation or the other way around. The historical evidence is clear: cities produced jobs that pulled less productive labour from rural areas. That, in a nutshell, was the story of the Industrial Revolution.

The most unremarked replication in recent times has been in South Korea, going from 5pc urban in 1925 to 80pc by 2000. At the same time the country transitioned from an aid recipient to a member of the industrialised world, a donor in its own right.

The implication is not that moving all villagers to cities would yield a development miracle. Cities have to produce jobs at which migrants can be relatively more productive. The benefits of urbanisation are linked to productive employment the outcome of which is accelerated economic growth. Urbanisation and employment policies are interlinked; the types of jobs and where they are created should determine the beneficial movement of people.

At the same time, urbanisation is not preventable or reversible except at huge social cost. Very quietly, sometime in the early years of this century, the world became urban with more than half its population living in cities; the trend continues unabated whether cities are ready or not for migrants.

The workings of the market economy continue to reduce the demand for labour in farming, pushing out people who know it is better to be poor in the city than in the village. Without employment creation, existing cities would become centres of poverty with people eking out miserable livelihoods providing informal services like children wiping windscreens at traffic lights.

The choice between good and bad urbanisation is stark with huge implications for society. A little attention can make a big difference in the dynamic that will define our future.

This attention needs to go beyond a focus on megacities. While many are aware the world is now urban, few realise that the majority of urbanites reside in secondary centres not in megacities. This too has implications for policy design.

Urbanisation is distinct from city management. The former is a process involving the movement of people between places connected in a network; the latter is a municipal function specific to individual places.

System designers know that optimising a network differs from optimising any one of its parts — the latter most often leads to sub-optimality of the network.

Examples are legion. One familiar to Lahoris is the series of underpasses along the canal. As one weaves from one side of the road to the other, it is obvious that had the system had been viewed as a whole the alignment of individual underpasses would have been quite different. The result is compromised efficiency of traffic flow and safety of users.

Good urbanisation policy would avoid lopsided attention to megacities and also consider measures in secondary centres that would help the regional economy. For example, poorly functioning land markets stand in the way of the migration of mature industries from big to small cities where land and labour costs are much lower.

This process of ensuring the buoyancy of secondary cities is hampered in Pakistan by fears of purchasing land in places outside one’s area of influence. Transparency in land transactions is an essential requirement for healthy urbanisation whereby the growth of vibrant secondary cities prevents the overcrowding of bigger ones.

Within individual cities, there is another little understood phenomenon at play. Cities are productive because they provide large pools of skilled labour. But the size of a city’s population is not the same as the size of its labour market — the latter depends critically on the efficiency of city transport.

In terms of labour markets, megacities in Pakistan are agglomerations of many small cities — one cannot go from one to the other in less than an hour, the standard measure of accepted commuting time. There is evidence that for every doubling of labour market size, productivity per worker could increase up to 40pc. One can immediately see the economic loss imposed by fragmented labour markets. Our cities have all the disadvantages of large populations and few of the advantages of large labour markets.

Rapid transit and reduction of congestion are central to urban productivity; no surprise that almost all large Indian cities are investing in metro rail systems. The most dramatic improvements have taken place in China which has recognised the importance of labour markets. In Shanghai, for example, the population within a one-hour commute time increased from 4 to 12 million in less than 20 years. The BRT (bus rapid transit) in Lahore is a right step but much more remains to be done.

The same logic applies to inter-city rapid transit. Once such links are in place, people could live in Gujranwala and work in Lahore which, in turn, would generate the dynamic for investments that would make Gujranwala a more livable city. Once again, this has been witnessed in other countries where suburbs and cities are linked with good transport.

It is ironic that such inter-city commuter transport did exist in Pakistan, a daily train from Sialkot that brought blue collar workers from intermediate stops to Lahore. Instead of improving over time the service became so unreliable it ceased to be a viable option.

Our visionary former chief planner succeeded in including a leading role for cities in the New Growth Framework approved by parliament. However, we can be sure it will not be implemented without pressure from below.

We need to broaden the scope from cities to urbanisation and become active stakeholders in shaping the process that would impact our welfare for years to come. Urbanisation will be unforgiving with no second chances. It will not be possible to rewind and re-run the movie if we don’t like the ending.

The writer is dean of the School of Humanities, Social Sciences and Law at the Lahore University of Management Sciences.