The Hindu Business Line : Economy: Build like the ant

Ants build big hills that last and prosper for hundreds of generations but we build towns the way grasshoppers do; the type that become unliveable within one generation. Worse, more and more migrants to our cities have started to live like stray dogs — on the streets with no houses at all. No wonder that ours is an obese economy: Big and getting bigger but not becoming healthier, says P. V. Indiresan.

THE following tale is going the rounds on the Internet.

The ant and the grasshopper

Classic version: The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks he's a fool and laughs and dances and plays the summer away. Come winter, the ant is warm and well fed. The grasshopper has no food or shelter so dies out in the cold.

Modern version: The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks he's a fool and laughs and dances and plays the summer away. Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while others are cold and starving. BBC, CNN, NDTV show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food. The world is stunned by the sharp contrast. How can this be that this poor grasshopper is allowed to suffer so? Amnesty International and the UN criticise the Government for not upholding the fundamental rights of the grasshopper.

The Internet is flooded with online petitions seeking support to the grasshopper. Opposition MPs stage a walkout. The Left parties call for a `Bharat Bandh' in West Bengal and Kerala demanding a judicial enquiry. Finally, the Judicial Committee drafts the Prevention of Terrorism Against Grasshoppers Act (POTAGA), with effect from the beginning of the winter. The ant is fined for failing to comply with POTAGA and, having nothing left to pay his retroactive taxes, his home is confiscated by the government and handed over to the grasshopper in a ceremony covered by BBC, CNN and NDTV. The grasshopper is invited to address the UN General Assembly.

Depending on your ideological inclination, you will find this tale honest or warped. In truth, the Indian economy has three, not two, kinds of creatures: Ants that work; grasshoppers that are parasites, and stray dogs that are willing to work but are idle because there is nobody to employ them.

There is renewed interest in growth centres as a remedy for jobless growth that is afflicting our economy. In the past, growth centres did not take off because they overlooked some fundamental factors of job generation.

Connectivity creates jobs: This follows Metcalfe's Law, which states that the power of a connected network increases as the square of the number of nodes connected. Therefore, it is important to link together as large a number of businesses and customers as possible. Linkage implies fast and frequent connectivity. It is best if the time to link does not exceed 15 minutes. In consequence, cycle rickshaws and very large cities are poor in networking efficiency and detract from Metcalfe's Law — the first because it moves slowly and the second because distances are large. Both slow moving vehicles and overgrown cities destroy jobs.

Crowded cities reduce the purchasing power of money: Mumbai and New York sell fewer cars than smaller but less congested cities. Metcalfe's Law does not operate in full in congested cities both because housing and services become expensive and because even if money is available people cannot buy goods as they have no place to keep them. Congestion destroys jobs by choking demand.

Higher the prosperity, lower the self-sufficiency: Forest tribes are almost completely self-sufficient. They neither sell to others nor buy anything from others. Rich communities are dependent on purchases for almost everything they need. As a corollary, they should sell an equivalent value of goods and services, and also be competitive enough to sell, which means that prosperity needs high productivity too. Obvious. Not really because most employment generation schemes concentrate on low-productive SHGs and craft industries. SHGs and craft industries cannot prosper by themselves; they work best as supplements to high productivity industry. High-wage, capital intensive industries may not create jobs directly but are the seed for mass employment.

The poor and the unorganised sector provide essential services and deserve living space: The bottom 25 per cent of the population needs no more than 10 per cent space either for living or for working. We wax eloquent about economic justice but refuse to reserve even a paltry ten per cent space for the deserving poor. That is why our cities are suffering. Where the poor do not get the little space they need, earn well, the rich may acquire much wealth, but cannot enjoy it, certainly not in peace.

About 70 per cent of the total demand arises from domestic consumers: Most jobs are, therefore, to be found in meeting consumer needs, in shops, schools, healthcare, recreation and the like. Planners forget that industry supports far fewer jobs than services do and agriculture an ever decreasing number.

Growth centres have choked, have stunted, job growth because they concentrated on industrial estates and did not make enough provision for commercial and consumer services. We have many involuntary idle persons only because we have not factored these principles in our designs for growth centres. Then, growth centres should incorporate the following features:

Fast and frequent local transport: Consumers like personal transport best. That means ample parking space and wide roads. Closely spaced fast and frequent public transport is a more efficient and cheaper alternative.

For public transport to be acceptable, the access distance should not exceed 500 metres, the waiting period not more than five minutes. Further, it is best for investment in transport to precede, not follow, growth in demand. In that case, far cheaper high-speed bus corridors will suffice. If demand is allowed to precede mass transport, far more expensive systems such as Metros become unavoidable. Incidentally, PURA has been designed with these limits in view.

Strict check on population density: There is a wrong perception that crowded bazaars make an economy rich. That is false; only poor countries have crowded bazaars; rich countries have spacious shopping malls and pedestrian precincts. Congestion is a destroyer of wealth; it increases prices and destroys the buying power of money. Hence, the rule should be: Once a bazaar starts getting crowded, halt further investment and move elsewhere. Worldwide experience indicates that it is best to restrict the number of dwellings to 25 per hectare with built-up space not more than half the total.

Once slums erupt, halt further growth; start a new growth centre: Slums choke employment. It is far cheaper to prevent slums than clear them later on. Growth centres should be composite towns and not merely industrial estates. If a town's economy is compared to a tree; agriculture is the (invisible) root; industry the trunk and services are the branches, the foliage and fruits. A far from comprehensive list of services that towns can, and should, support and growth centres are not geared to do will include:

Transport (personal, mass, goods); municipal services including water supply and waste disposal; education — pre-school, primary, secondary, higher, vocational; health services; restaurants and hotels; retail and wholesale markets; financial services; commercial services; real estate services; energy — electrical, thermal, mechanical and chemical; construction; repair and maintenance services of buildings, vehicles, domestic and industrial appliances; domestic services; tailoring; entertainment; recreation, gardens and play grounds; tourism; worship; printing; print and electronic media; central, state and municipal administration; private and public security; wired and wireless communications; R, D&D laboratories; horticulture, dairy farming and eat processing. How many growth centres consciously promote all these activitie?

Organised sector should be the base: In every seminar, it is trotted out as a factoid that organised business supports only 7 per cent of national employment, and the unorganised sector the remaining 93 per cent. This is misleading. If we exclude the still undeveloped rural economy, the organised sector accounts for 25 per cent of the employment. It appears that, just like any advanced economy, the modern part of our economy functions not with 7 per cent employment in the organised sector but with 25 per cent or more. Growth centres have remained stunted because we have discouraged large businesses to expand their labour force. We have forgotten elementary principles of economics: Rent control destroys the housing market and labour control destroys the labour market.

Ants build big hills that last and prosper for hundreds of generations but we build towns the way grasshoppers do; the type that become unliveable within one generation. Worse, more and more migrants to our cities have started to live like stray dogs - on the streets with no houses at all. It is no wonder that ours is an obese economy: big and getting bigger but not becoming healthier.

(The author is a former Director of IIT Madras. Response may be sent to indresan@vsnl.com)

(This is 143rd in the Vision 2020 series. The previous article was published on February 7)

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