Building the Voluntary City: Lessons from Gurgaon and Jamshedpur

The world’s urban population is growing very rapidly, especially in the developing world. The McKinsey Global Institute estimates that in India alone such an expansion will require the building of, in essence, a new Chicago every year for the next several decades. The problem with these numbers is not the expense. The problem is political and organizational. Many currently less-developed countries, including India, remain high in corruption and low in efficiency, especially in the administration of their towns and cities. It would be wonderful if foresighted and public-spirited government planners would provide India and other developing nations with wise urban planning but it seems unwise to rely on what has historically been rare for this massive transformation. Is there an alternative?

In Lessons from Gurgaon, India’s private city (working paper) found in a new book Cities and Private Planning  Shruti Rajagopolan and I explore this question. Gurgaon, which I have written about before, shows both the successes and failures of private development. On the surface, Gurgaon is a gleaming, modern city built nearly overnight on wasteland. Gurgaon was built, however, without benefit of planning and its failures–most notably poor and inefficient provision of  water, sewage, and electricity–are a warning. The failures all stem from high transaction costs, Gurgaon’s private developers have simply not managed to Coasean bargain and internalize externalities. It’s clear from Gurgaon that cities need advance planning–a reservation of rights of way for water, sewage and electricity at the very minimum–but does the planning have to be provided by government which is often incapable of such foresight?

The lessons of Jamshedpur, India, suggest another approach. Jamshedpur is a private township, planned from the beginning by visionary businessman Jamshetji Nusserwanji Tata, who, after travelling to the United States to see Pittsburgh, returned to India to found Tata Iron and Steel. Jamshedpur has been run by a single, integrated entity for over 100 years and as it is integrated it has internalized externalities. As a result, Jamshedpur, India’s other private city, has some of the best urban infrastructure in all of India.

Gurgaon shows the benefits of competition. Jamshedpur the benefits of integration. Can we get the best of both worlds?

If the rights to develop Gurgaon had originally been sold in very large packages, some five to seven proprietary but competitive cities could have been created in that region. Within this system the role of the state is to make it possible to auction large parcels of land. Once such parcels and associated rights to develop the land are created, private developers will provision public goods and services up to the edge of their property.

As proprietary communities, the competitive cities would have every incentive to invest in and especially to plan for appropriate infrastructure. Moreover, with five to seven communities in the same region, competitive pressures would keep rents low and at efficient levels for maximizing net benefits (Buchanan and Goetz 1972, Sonstelie and Portney 1978). Within the larger city, subdivisions on the order of neighbourhoods and business districts could be sublet and run by competitive firms with the overarching city establishing rules to internalize externalities. Competitive private governments would also generate experimentation and innovation in new rules that would then spread through intercity learning (Romer 2010).

Thus, Rajagopolan and I conclude:

In the next five decades many entirely new cities with populations in the millions will be built in places where today there is little or no population or infrastructure. Most of the urban development will occur in the developing world where government resources are stretched thin and planning is in short supply. Gurgaon illustrates the scope and the limits of private sector provisioning when the state machinery fails to provide essential public goods. The lesson of Gurgaon, Walt Disney World, and Jamshedpur is that a system of proprietary, competitive cities can combine the initiative and drive of private development with the planning and foresight characteristic of the best urban planning. A proprietary city will build infrastructure to attract residents and revenues. A handful of proprietary cities built within a single region will create a competitive system of proprietary cities that build, compete, innovate, and experiment.


Bo-ring. Try getting Dr. Romer as a co-author next time. He could tell you guys a thing or three about free cities.

Are you kidding? If people don't need to start over in times of gridlock...when do they?

@Becky, surely you jest?

There's another public good that is generally forgotten in the developing world: the minimization of natural hazards like floods. The government may prohibit development in too risky areas (floodplains) or in areas that contribute to stormwater management( rivers & lakes). After development, solutions become a lot more expensive: dams, channels, levees, pumping, etc.

Any data on how the storm water management works?

Forget about building cities in India - Move them all here to take advantage of our institutions. I hope the new Congress has a good pro-business, free market, libertarian bent so we can finally get moving on picking up those trillion dollar bills.

If the article was meant to highlight local corruption as an obstacle to effective urbanization in developing countries, perhaps the challenge should have been framed using a different reference point than building a new Chicago every year.

Local corruption is always more prevalent than corruption on higher levels because the humans that inhabit smaller political subdivisions are a less developed species than those on the national stage. The national figures are more thoroughly vetted by the media because they're more important. Joe Biden, for instance, has risen from Nowheresville to next in line for the most powerful position on the Green Planet because he's incorruptible and we know it. A sleaze like Mayor Oscar Hernandez, of Bell, CA, on the other hand, is only eventually revealed because the media is preoccupied with Mrs. Barak Obama's dietary opinions.

Joe Biden? THE Joe Biden?

The Senator from MBNA?

OT: I've been reading this blog for 8 years or so, and I still can't stop transposing the B and Rs in Alex's name. So I'm petitioning to have his name changed to Tarrabok to make things easier for me

Don't confuse me.

This is a great idea. We should invite the British or dutch in to run some of these enclaves. They seem to have nice cities. What could possibly go wrong?

Hell, I'd even include the French but for some reason I think the Portuguese are not going to do much. Even if they invented the planned city.

Tangentially, how might the securitization of income taxes in a jurisdiction change the level and quality of public goods provided? Certainly, the holder would have incentive to provide at least basic services -- the water, sewage, and electricity referenced above (and in the near term, attracting industry might seem attractive).

But in the longer term, or in more mature economies (read: internet), the real value would lie in the capture of yet-unrealized human capital gains. Would it not make sense, then, to facilitate (note: NOT supply, i.e. public hospitals) better quality education, healthcare, or even present and future air quality, to either develop your talent (thus hopefully income) from within, or attract it from outside?

Now, holding income constant in a given area, the security is most valuable to the governor who can supply necessary services at the lowest cost (which is how government works now, correct?). The challenge may be to avoid a possible equilibrium where less prudent holders/governors undersupply their citizens (which would only happen if they lacked mobility, due to policy or financial constraints, but the latter seems unlikely).

"The problem with these numbers is not the expense."

The problem that Alex is interested in is not the expense. The construction of new cities is very expensive. The number of visionary billionaire developers who will take it on is finite. Well-planned Chicagos dominated by a single landowner will not arise at one per year.

"The problem with these numbers is not the expense."

I copied that quote to comment on it, as you did. Because the expense is the basis for the "notably poor and inefficient provision of water, sewage, and electricity." None of that is free and none of that magically appears.

Comparing Gurgoan to Jamshedpur is a bit misleading. People would have bought in Gurgoan even if it had been a lot more horrible than it turned out simply because it is in the NCR.
Who in their right mind would have gone to Jamshedpur if the Tatas hadn't developed it as a Company town with all the amenities from the get go?
Lavasa might be a better case study highlighting the pit-falls in building new cities.

I agree. Any such analysis of private Indian cities should have included amby valley, lavasa and perhaps even puttaparthi.

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