By Rupa Subramanya Dehejia
Despite the pollution, traffic congestion, and ramshackle infrastructure, does India’s future lie in cities like Bangalore? And how has globalization helped shape what Bangalore is today and what it may become in the future?
Justin Sullivan/Getty Images If chatting over coffee gives rise to new ideas, it can increase workers’ productivity.
On a recent return visit to my native city, I was struck by the subtler changes wrought by globalization that fly below the radar.
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Those of us who live in India’s big cities long ago came to accept the phenomenal changes brought about by the opening of the Indian economy 20 years ago and a globalized world that it allowed us to tap. The prevalence of fast food outlets, fancy designer boutiques, glitzy shopping malls and hotels is now standard fare in all the major metros.
But how about an independent French baker tucked away on a quiet side street in a leafy upscale neighborhood? Rather than car horns and auto exhaust, you can saunter over and enjoy your croissant and latte to the sounds of birds chirping and kids playing. Even the paving and landscaping around you are more reminiscent of Palo Alto, as is the champagne climate at a time when much of India is laboring under heat and humidity. As for bubbly, you can stroll a few blocks in another direction to the nearby boutique hotel and enjoy a glass later that evening.
Sure, Mumbai and Delhi, India’s older cities, have their fancy spots, but they carry the stamp of the old world. Cities like Gurgaon and Noida have some of the newness of Bangalore, but are satellites of Delhi, and feel that way. Bangalore is unique among the major metros in having an economic boom and prosperity that is entirely a product of globalization and economic reforms.
It was the coincidence of liberalization, globalization, and the IT boom in the U.S. in the 1990s that came together to fuel Bangalore’s rise. Delhi’s prosperity derives from its proximity to the seat of power, whereas Mumbai’s relies on banking, finance and Bollywood, all of which predate the 1991 liberalization. Bangalore’s story, for the most part like Silicon Valley’s, is based on hard work, ideas and inspiration, not old time crony connections — all enabled by globalization.
Of course, when Bangalore and globalization appear in the same sentence, it’s usually in relation to call centers and business processing outsourcing – what India makes here and exports to the rest of the world. But that’s not the whole story. Globalization is a two way street.
Many of the pioneers of Bangalore’s IT industry were educated or worked in the U.S. before returning to India and they brought some of that experience and their impressions of what worked there back with them. These range from the egalitarian spirit in which they run their businesses to the distinctly San Francisco Bay Area-influenced architectural designs of their homes which fit with Bangalore’s remarkably similar climate and topography.
It’s well documented that Bangalore’s IT industry evolved as a series of clusters very much as in Silicon Valley. The city’s posh neighborhoods seem to have taken a cue from the software campuses in trying to create self-contained environments for their residents to live and play, just as they work in similarly hermetic IT clusters.
In economic terms, areas like Koramangala, which is home to many of the elite in Bangalore’s IT industry, are trying to “internalize the externalities.” The residents, directly or indirectly, provide infrastructure and amenities, such as security, parks, daycare centers, private schools, not to forget the fancy French baker.
The neighborhood’s political clout in terms of access and influence — if not voting power — ensures that the city and state provide better than average power and water supply.
In a larger sense, the clustering of people and activities is central to the economic importance of cities and their role in economic development. This is a theory that’s been championed by Harvard economics professor Edward Glaeser and is the subject of his widely praised book “Triumph of the City.” In a recent report on Bangalore, Prof. Glaeser points to the centrality of what economists call “agglomeration economies” that arise from clustering.
These range from economies of scale — for example, in the provision of infrastructure — to “network externalities” that arise when similar activities occur in close proximity. These latter often occur as “spill-over effects,” which are economically productive interactions that are difficult to price in the market.
To give a simple example, if two software engineers who live or work nearby chat over coffee and this gives rise to new ideas and innovation, productivity will have risen because of their proximity. That’s the crux of Prof. Glaeser’s thesis: put smart people together and good things happen.
In the case of Bangalore, those good things include the fact that real incomes increased by 73% between 1998 and 2005, much higher than the national average. As a consequence, the gap between Bangalore’s income and the rest of the state and country continues to widen. In 1998, it was 24% higher than the national average, and, as of last year, it was almost 70% higher.
And there’s no doubt that this phenomenal rise in income is driven by the IT industry and outsourcing which contributes to one-third of India’s total exports, a third of which in turn comes from Bangalore itself.
By its very nature, Bangalore embodies the rise of India’s new middle class. While electoral considerations ensure that impoverished rural India remains politically dominant, Prof. Glaeser rightly warns that there’s “no future in rural poverty.” He argues persuasively, with Bangalore as a case study, that the future of economic development in India and elsewhere in the developing world lies in nurturing its cities.
Rupa Subramanya Dehejia writes Economics Journal for India Real Time. You may follow her on Twitter @RupaSubramanya.
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