Cities must be geared for industrial transition

Finance Minister Nirmala Sitharaman’s effort to blame the preference for using Ola and Uber for the slowdown in the economy received much flak from social media, and not entirely without reason. The slowdown is clearly visible in sectors of the auto industry, such as two-wheelers and commercial vehicles, that are not affected by the operations of taxi aggregators. And while the slowdown may be most striking in the performance of the auto industry, it has also affected a variety of other industries. But if we go beyond explanations for the slowdown, the impact that Ola and Uber have had on the auto industry reflects the need for cities to be resilient to economic transformations.

The growth of taxi aggregators typically consists of two phases. In the first phase it replaces taxis operating individually. Since a large number of the taxis operating individually are older vehicles, their replacement by taxi aggregators using newer vehicles increases the demand for passenger cars. In the second phase, the system of taxi aggregators becomes so well-established that individual car owners prefer using these services to replacing their cars.

This preference grows with unruly urbanisation increasing the various costs of keeping a car, including the delays caused by the absence of parking facilities. Union Minister Nitin Gadkari has added to these costs with his strategy of using prohibitive fines to enforce traffic rules. Even if Gadkari changes his mind, or is overruled by State governments, Ola and Uber can be expected to leave their mark on the demand for passenger cars.

Textbook economists would brush aside the effects of such changes as no more than the economy finding its way to efficiency. As long as Ola and Uber reduce the costs to individuals of owning a car, including fines and finding parking, they provide a more economically efficient form of passenger car transportation. If it leads to a decline in the demand for cars, so be it. Cities where car manufacturers are located must simply move on to other activities where they are more efficient. And if that happens the economy as a whole would move on to a more efficient plane.

The trouble is textbook economics usually compares two static situations, the one before Ola and Uber and the one after they have had their impact. It doesn’t concern itself too much about the process of moving from one situation to the other. It simply assumes that those who lose their jobs in the auto industry will do other work in the industries where their cities are now considered efficient. It has little time for the possibility that the worker losing her job in the auto industry may not have the skills to work in the industries where the jobs are opening up. Apart from everything else, the new industries may prefer starting out with younger workers they can train rather than attempting to change the skills of workers who have settled ways of working. It is also possible that the new job opportunities are emerging in distant places that cannot be easily accessed by those who have lost their jobs.

The gap between the smooth transitions of textbook economics and the barrier-filled paths of reality is wide, but it is not impossible for urban policy to try and narrow it. A city which is dominated by an industry which has lost its earlier momentum must make itself open to the newer efficient industries. It must provide facilities the newer industries demand in a way that is cost effective. It must also enable workers to tap the opportunities provided by the new industries.

There are examples of cities across the world that have made this transition. Akron in Ohio, US, used to be a centre for tyre manufacturers, including being home to some of the major global brands. It found itself facing an existential challenge when the tyre industry chose to leave the city. It had a huge tyre industry-centric infrastructure and workforce. It used multiple innovations to alter its infrastructure cost effectively. It converted its rubber silos into five star hotels. It also created effective incubators that allowed workers facilities for a fixed number of years to experiment with being entrepreneurs.

There are a number of behavioural impediments to Indian cities developing a similar resilience. We prefer to demolish and reconstruct, rather than adapt or modify old buildings to new uses. Our deep rejection of failure makes experimentation with entrepreneurship extremely difficult. The task of challenging these behavioural traits is made even more daunting by the decline of a cultural realm that can address these issues in the popular domain. The more economically, socially and culturally expensive it gets to bring about change in our cities, the less resilient they get.

The writer is a professor at the School of Social Science, National Institute of Advanced Studies, Bengaluru

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