The Economist reports about the 1/2 built Sea Link Bridge in Mumbai. Â Years ago, I acquired two copies of Altshuler and Luberoff’s Mega Projects. Â While Keynesians tend to focus on the short run stimulus effects of huge government projects, I’m more interested in the long term quality of life and productivity effects of such investments. Â In the case of China’s cities, I have written about the impact of subways on Beijing’s urban form and in the future I will post my new China bullet trains paper once it has been accepted for publication. Â For those who are interested in “Why Nations Fail”, the Economist piece has a fascinating paragraph that I reproduce below the fold.
Acemoglu and Robinson would not be surprised by the following quote from the Economist.
“In fact, the land is still owned by the government. But the conspiracy theory that Mumbai is essentially a stitch-up by the rich is not propounded only by drunk cold-callers and men of the cloth. It may be the most widely held belief in the city. Its grandest iteration is that the cityâ€™s elite has deliberately sabotaged its transport infrastructure to enrich themselves. The argument goes like this: better transport would lower the scarcity premium on land and property in downtown Mumbai, hurting buildersâ€™ profits, and in turn curbing the flow of bribes to Indiaâ€™s political parties.
The idea that the rich control the cityâ€™s fate was fuelled by a battle in 2005-08 between Mukesh Ambani, Indiaâ€™s richest man, and his estranged brother, Anil, over a tender to build the trans-harbour link. After a legal tussle Anil undercut his brother by bidding for a concession of nine years and 11 months. The tender process was eventually abandoned.”
So, the rich own the downtown land and know that transportation improvements (such as bridges and highways) would reduce the scarcity value of their downtown land. Â They thus limit new transport infrastructure that would speed up and modernize the city.
To an economist, the question here arises of the “system of cities”. Â If Mumbai’s quality of life deteriorates because of wasteful commuting then a rival city nearby that does not engage in such inefficient policies could have an edge in the competition for capital and labor. Â As households Tiebout “vote with their feet” and move to this other city, this would discipline the Mumbai elites to provide public goods. Â I recognize that if Mumbai has unique positive agglomeration effects then this competitive effect could take a long time.
What I find really interesting here is that the elites gain from injuring the city’s quality of life. In the case of China’s cities, Siqi Zheng and I have argued that the apartment owners gain from improvements in the city’s quality of life because this is capitalized into resale prices. Â The downtowns in China’s major cities feature government functions and cultural amenities so they are “consumer cities” whose prices are unlikely to be threatened by transport innovations. Â Look at how high land prices are in downtown San Fran, Boston, Chicago and Manhattan. Â Â When there are significant consumer amenities downtown, transport innovations can make the downtown land more valuable because there are more visitors coming in for the day (i.e Westchester to Manhattan theater trips).