The Economics of Urbanization

By Anjum Altaf

We ought to care about urbanization 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 urbanization or the other way around. The historical evidence is clear: cities produced jobs that pulled less productive labor 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 5 percent urban in 1925 to 80 percent by 2000. At the same time the country transitioned from an aid recipient to a member of the industrialized 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 urbanization are linked to productive employment the outcome of which is accelerated economic growth. Urbanization 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, urbanization is not preventable or reversible except at huge social cost. Vey 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 labor 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 centers of poverty with people eking out miserable livelihoods providing informal services like children wiping windscreens at traffic lights.

The choice between good and bad urbanization 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 mega-cities. While many are aware the world is now urban, few realize that the majority of urbanites reside in secondary centers not in mega-cities. This too has implications for policy design.

Urbanization 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 optimizing a network differs from optimizing 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 urbanization policy would avoid lopsided attention to megacities and also consider measures in secondary centers 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 labor costs are much lower.

This process 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 urbanization 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 labor. But the size of a city’s population is not the same as the size of its labor market – the latter depends critically on the efficiency of city transport.

In terms of labor 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 labor market size, productivity per worker could increase up to 40 percent. One can immediately see the economic loss imposed by fragmented labor markets. Our cities have all the disadvantages of large populations and few of the advantages of large labor 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 recognized the importance of labor markets. In Shanghai, for example, the population within an one-hour commute time increased from 4 to 12 million in less than 20 years. The BRT in Lahore is a rightful 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 urbanization and become active stakeholders in shaping the process that would impact our welfare for years to come. Urbanization 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.

Anjum Altaf is Dean of the School of Humanities, Social Sciences and Law at the Lahore University of Management Sciences. This op-ed appeared in Dawn on May 6, 2013 and is reproduced here with permission of the author.

Related posts:

Lahore – What is to be Done?
Karachi is a Small City
Urbanization in India: Some Questions


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