2010 Publications Making Sense of Bangalore

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July 2010

Making Sense of BangaloreEdward L. Glaeser

Bangalore is a model of how an urban agglomeration can bring prosperity to a poor country.

The Legatum Institute is proud to publish this insightful study about one of Indias most

distinguished cities. Harvard Universitys Edward Glaeser, a well-known commentator

on urban issues, considers the historical path that brought this city from a small urban

agglomeration during the 1900s to the bustling centre of industry and commerce that it

is today. Through its careful analysis of the key drivers of Bangalores success, Making Sense

of Bangalore draws important conclusions about the citys future and lessons for other

metropolitan areas in todays rapidly urbanising world.

0764LEG_bangalore_cover_v6.indd 1 24/06/2010 10:42

* This research was funded by the Legatum Institute and I am grateful to Ryan Streeter at the Institute for his support. Kristina Tobio provided excellent research assistance. Lakshmi Iyer provided very helpful comments.

Making Sense of BangaloreEdward L. Glaeser *Havard University


All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical including photocopying, recording or any information storage or retrieval system, without the prior written permission of the copyright holder. Please direct all enquiries to the publishers.

Legatum Institute11 Charles Street, MayfairLondon, W1J 5DWUnited KingdomT +44 (0)20 7148 5400F +44 (0)20 7148 [email protected]

CoNTeNTS

Abstract 4

Chapter 1 Introduction 5

Chapter 2 The Successes and Failures of Bangalore 7

Chapter 3 Understanding Bangalores Success 13

Chapter 4 The Roots of Bangalores Success: education, Infrastructure and Amenities 17

Chapter 5 Policy Lessons and Challenges 21

Conclusion 28

References 29

5ABSTRACT

Bangalore is among the most successful cities in India and the developing world. Its population

growth has been dramatic and it has generated vast amounts of wealth and prosperity.

Bangalores economic success reflects the ability of cities to connect smart people who then

work together and learn from one another. In the developing world, places like Bangalore

also serve as conduits for knowledge and capital and services across continents. The vitality

of Bangalore contrasts vividly with the continuing poverty of rural India. That contrast

reminds us that cities are a crucial part of economic development. It makes far more sense

to directly address the challenges of urban growth, such as unclean water and congestion,

rather than to artificially constrain the expansion of mega-cities like Bangalore.

7chaptEr 1

INTRoDUCTIoN

Bangalore, today, appears to be the glittering example of Indian success in information

technology. Bangalores success, symbolized by firms such as Wipro and Infosys, has reshaped

western images of India, from a nation known for rural poverty to a place renowned for well-

trained engineers who deliver high quality software at low costs. This shift in image reflects

a robust reality, as Indian software exports now exceed 40 billion dollars, approximately

twenty-three percent of the sub-continents total exports1. That industry is overwhelmingly

located in a small number of large cities, and Bangalores region of Karnataka is responsible

for a third of Indias total software exports.2

The rise of Bangalore as a software center has certainly

created large financial benefits for many Indians. The city is now

home to 10,000 millionaires and per capita income in the urban

agglomeration is twice that of the Indian average.3 Yet the city

certainly also faces major challenges. Parts of Bangalore do indeed feel like a prosperous

Silicon Valley office park, but the city is still in India, and poor people will inevitably flock to an

economic engine. one estimate suggests that almost twenty percent of people in Bangalore

live below the poverty line.4

Bangalores poverty may be the inevitable result of being a productive city in a country

with hundreds of millions of people and free migration, but the impact of all that migration

is that public resources become enormously overtaxed. Water is rarely clean and sewage

remains a challenge. Software companies cannot rely on the electricity grid and must

depend on emergency generators. Traffic congestion is an enormous problem, with cross-

town commutes often lasting above an hour. The talent in Bangalore is certainly first world,

but the public infrastructure is not.

After reviewing the available facts about Bangalore in Chapter 2 of this paper, I turn to

an analysis of the sources of Bangalores success. While on one hand, Bangalore is a symbol

1 http://www.nasscom.org/Nasscom/templates/NormalPage.aspx?id=54612; http://www.economist.com/countries/INDIA/prof-ile.cfm?folder=Profile-FactSheet

2 http://www.reuters.com/article/inDepthNews/idUSISL294850200805203 http://timesofindia.indiatimes.com/articleshow/1842018.cms 4 http://www.ces.iisc.ernet.in/energy/water/paper/bangalore/TVR24_p11_Bangalore.pdf

The talent in Bangalore is certainly first world, but the public infrastructure is not

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of the worlds flatness, the ease of communication across continents, the city should also

be a symbol of the continuing importance of urban proximity. The software industry is

so concentrated in Bangalore because ideas do not move effortlessly across space. Young

software entrepreneurs come to Bangalore to learn the software skills that are critical to

success. Concentrating all that talent in a single city makes it easier to coordinate face-to-

face meetings with foreign investors and clients. Bangalores eminence suggests that India

is far more likely to succeed when its citizens are connected with each other and with the

developing world in dense urban areas.

In Chapter 4, I turn to the roots of Bangalores success. While it may have been inevitable

that Indias growth would be concentrated in dense cities, it was certainly not inevitable that

Bangalore would emerge as such a pre-eminent place. There are many factors that came

together to make Bangalore such an information technology hub,

including a long-standing commitment to new industries and a

relatively pleasant climate, but engineering education played the

primary role. The citys success has come from its human capital.

After all, the urban advantage at sharing ideas is far more valuable

when people have more ideas to share.

Both Bangalores successes and failures suggest implications for

policy both at the national and local level, in India and elsewhere.

The enormous successes of Bangalore and other great Indian

metropolises remind us that the present and future belong to

cities. There is no future in rural poverty; developing countries that

bet on their villages are missing the fact that the road to wealth

comes from connection with the developed world and cities are

the places that make those connections. Moreover, the advantages of cities are tied closely

to the amount of skills assembled in those urban areas. Investing in education may be the

most important means of enabling city-led economic growth.

Yet Bangalores growth also exposes the weaknesses of its public infrastructure,

particularly in the areas of water, sewage and transportation. Bangalore faces a battle to

retain talent, just like any other city, and quality of life factors matter in that fight. The citys

long commutes suggest the value of congestion pricing, on at least some of its roads. The

limitations on clean water cry out for more investment in health-related infrastructure.

Bangalore is a model of connected entrepreneurship, but so far, its public sector has failed

to deliver core urban services that match its private talent.

There is no future in rural poverty; developing countries

that bet on their villages are missing the fact that

the road to wealth comes from connection with the

developed world and cities are the places that make

those connections

9chaptEr 2

THe SUCCeSSeS AND FAILUReS oF BANgALoRe

Bangalore is, in many respects, the newest of Indias five largest cities. Delhi is an ancient

Indian capital. Kolkata, Mumbai and Chennai, once Calcutta, Bombay and Madras respectively,

were important ports in the 18th century and had all grown large by the start of the

20th century. In 1901, when Mumbai and Kolkata both had close to a million residents

and Chennai had 500,000 people, there were only 160,000 people in the larger urban

agglomeration of Bangalore.5 The city does have pre-modern history. It was allegedly laid

out in the 16th century, and was an object of conflict between the British and Haidar Ali in

the 1700s, but the citys rise to importance is a 20th century phenomenon. Figure 1 shows

Bangalores population from 1901 to today.

Figure 1: population of Bangalore (19012009)

0

2

4

5

6

7

3

1

1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2009

Year

Popu

latio

n (M

illio

ns)

Source: Census of India

5 http://www.chaf.lib.latrobe.edu.au/dcd/page.php?title=&action=next&record=1180

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The citys relatively recent origin has costs: Bangalore certainly has a more limited

architectural heritage than Mumbai or Delhi. But there are also benefits. The older port

cities suffer from being hemmed in by water, which reduces the ability to build and to travel.

The port cities can also suffer from excessive heat and humidity, while Bangalores location

high on the Deccan plateau gives it a relatively mild climate. In a world in which population

is mobile, a relatively benign climate is an asset that helps to attract human capital (glaeser,

Kolko and Saiz, 2001).

As Figure 1 illustrates, Bangalores growth became particularly

dramatic after 1941. In that year, Bangalores population of

420,000 would have made it Americas 19th largest city, coming

in after Newark and ahead of Kansas City. Today, Bangalore is,

of course, larger than any American city other than New York.

Despite Bangalores modern association with software and information technology, it is

worth remembering that the population of the city grew approximately four-fold between

1941 and 1971, to over 1.6 million, before there was any significant information technology

in the place. 6

During these years, Bangalore became the capital of the state of Karnataka and an

increasing hub for heavy industry, much of which was subsidized and protected by the

government. For example, Hindustan Aircraft Limited, now Hindustan Aeronautics, National

Aerospace Laboratories and Bharat electronics located in the city during the post-war

period.7 But while these relatively high-tech industries seem important today because

they appear to be pointing the way towards modern Bangalore, during most of the post-

war period, textiles were Bangalores largest industry. Bangalore was a center of cotton

production, including both domestic producers and foreign investors, such as the vast Binny

Mills. The Bangalore region also had an older chemical industry which continued to be

important in the 1950s.

The dominance of textiles during the early post-war years is, in a sense, unsurprising.

Producing cloth and clothing has been a primary business of urban areas for a millennium,

because clothing is a basic human necessity and there are returns to scale associated with

producing in a single location. Cotton has been grown in India for at least 5,000 years, and

India remains the worlds second largest producer of raw cotton today.8 Cotton production,

of course, was even more important in Mumbai and Chennai than it was in Bangalore The

only reason why cotton production in post-war Bangalore is remotely surprising is that

Karnataka, unlike Mumbais state of Maharashtra, is not itself a big cotton-producing region,

and the city had not historically had a large role in that industry.9

Bangalores rise as a textile industry had more to do with water power than with cotton

seeds. In 1906, Bangalore became the first significant Indian city with electric lights, thanks

to the hydro-electric power created by the dam at Shivanasamudra. The Princely State of

Mysore was well endowed with rivers, and the Maharajas and their Diwans invested heavily

6 http://www.megacities.uni-koeln.de/_frame.htm?http://www.megacities.uni-koeln.de/documentation/bangalore/statistics.htm7 http://www.hal-india.com/aboutus.asp; http://www.nal.res.in/pages/history.htm; http://www.bel-india.com/index.aspx?q=&sectionid=18 http://www.fas.usda.gov/gainfiles/200809/146295919.pdf9 Karnataka, for example, produced less than 200,000 bales of cotton in 2007 (http://des.kar.nic.in/mainpage.asp?option=2),

which is less than one percent of Indias total output, by contrast Maharashtra produces more than one-fifth of Indias total output. The neighboring state of Andhra Pradesh, however, does produce very significant amounts of raw cotton.

Today, Bangalore is, of course, larger than any American city

other than New York

11

Making Sense of Bangalore

in power production. A relative abundance of hydro-electric power would make Bangalore

attractive both to textile mills and to heavy industry during the post-war period.

Bangalores pre-1970 growth is deeply tied together with public interventions of three

major forms: infrastructure, education and industrial policy. The development of physical

infrastructure, such as hydro-electric power, was one major form of public support for

industry in Bangalore. The government of Mysore played a direct role in contracting

with general electric to develop hydropower, originally to help gold extraction from the

Kolar mine. While many of Indias princely states had leaders who were known more for

extravagant spending than good sense, the Maharajas of Mysore had a reputation for

running the best administration in native India. With the aid of competent Dewans, such

as Mizra Ismail and the remarkable Mokshagundam Visvesvaraya (Sir MV), Mysore invested

relatively heavily in the dams and roads that would make Bangalore more appealing for

industry. Bangalore certainly has significant problems in both transportation and electricity

generation, but it was and remains more developed in these areas than much of India.

I will focus on the crucial role that education policy continues to play in Bangalores

success in Chapter 4 of this paper, but it is important to note that the regions commitment

to human capital dates to the pre-Independence era. Mysore was the first princely state to

establish compulsory education. The Maharajah donated the land in Bangalore for the Indian

Institute of Science. Mysores Prime Minister, Sir MV, was himself

an accomplished engineer and thought that education was critical

for India to develop. He played a significant role in founding the

University of Mysore, and the Maharaja was its first chancellor.

Finally, and probably less successfully, the government engaged

in a very active industrial policy starting under the Maharajahs.

Indeed, it is hard to clearly distinguish between the Maharajah of

Mysore as head of state and the Maharajah of Mysore as venture

capitalist and entrepreneur. For example, the Maharajah was an

early supporter of Hindustan Aeronautics. Certainly, his considerable wealth was built up,

in part, by investing in nascent industries. After independence, Nehrus industrialization

policies and protectionism strongly supported Bangalores heavy industry. After all, Nehru

was certainly influenced by Sir MV and called Bangalore the city of the future. The regions

supply of power and engineers put it into an ideal position to take advantage of public

support for domestic technology firms.

Before Bangalore became a software hub, it was already a center for Indian electronics

and many of those electronics were public undertakings, sponsored by Nehru. For example,

Indian Telephone Industries, which makes phone equipment and has more than 12,000

employees, was founded in Bangalore in 1948.10 Bharat electronics Limited was another

public enterprise founded in the city in 1954. The Indian army is a major client of this 15,000

plus person firm.11 The Indian government exercised an enormous amount of control over

economic development in first decades after independence, so it shouldnt be surprising

10 http://www.hindustantimes.com/budget/StoryPage.aspx?id=13ac2912-19b7-42d2-b9ec-e5814583b056&Headline=Ailing+telephone+firm+hopes+to+ring+in+better+times&Category=Chunk-HT-UI-IndiaBudget09-Sectors

11 http://resources.bnet.com/topic/bharat+electronics.html

In 1906, Bangalore became the first significant Indian city with electric lights, thanks to the hydro-electric power created by the dam at Shivanasamudra

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that the growth of Bangalore during that time period was guided by government action.

Moreover, it is hard to judge if these public enterprises are successes or failures since the

government has been such a major client.

Bangalores software industry, conversely, competes in a free market, although

unquestionably the public sector has influenced the industrys development. While the rise

of Bangalore at the worlds outsourcing capital is often associated with Texas Instruments

decision to locate a plant there in 1985, the two largest Indian firms in the industry, Infosys

and Wipro, had operations in Bangalore before that date. Wipros transition from edible oils

into computer production came about when the Indian government pushed IBM out of the

country. A Bangalore location was natural because of the abundance of scientific talent in

the city. Wipro then moved into software, supported by massive tariffs on Western imports.

During this early phase, it wasnt particularly obvious that Wipro could compete on

a global stage making either personal computers or software without the support of

protectionist policies. However, as India opened up, the firm became a software consultant

selling the services of its talented engineers to the west. The consulting arrangement enabled

Wipro to collaborate across continents, combining its skilled workers with the knowledge

possessed elsewhere. This model was certainly better than trying to beat Silicon Valley

single-handedly, and it illustrates the core of Bangalores modern success as a gateway where

knowledge moves from east to west and back again.

A recent survey of Indias computer companies illustrates that Wipros transition is

the industry norm. As opposed to Chinese firms which make hardware and sell packaged

software, Indian firms typically sell software services (gregory, Nollen and Tenev, 2008).

Chinese software production caters strongly to a growing domestic market; Indian software

services are exported. Indian profit margins are also much higher, at least as a share of sales.

Their workers also typically earn more.

The role of Bangalore as a gateway was further enhanced when western companies,

like Texas Instruments, began setting up establishments in the city. In 1985, Texas Instruments

opened the first multi-national software design center in the city. Foreign investment in

Bangalore wasnt new, as the citys combination of skilled workers and relatively good

infrastructure had long given it appeal. Yet Texas Instruments move had enormous symbolic

importance. If an American company as successful and well-established at TI could write its

software using lower cost Indian labor, then why couldnt everyone?

And so, over the past 25 years, Bangalore has managed to sell Indian intelligence on

the world market. Sometimes this has come through multi-national subsidiaries, like TI or

Yahoo. Yet more often, the citys success has been developed by Indian entrepreneurs

who combine engineering talent and knowledge of outside demand for that talent. The

result is a place that has become a capital of the information age and a training ground for

young talent.

As Bangalores information technology sector has grown, the city has expanded

dramatically and become much richer. Figure 2 shows the growth of Bangalore relative to

India as a whole and relative to other major cities. Since 1970, only Delhi has expanded

more rapidly, buoyed by the enormous advantage of being the seat of Indias government.

Bangalore has expanded much more rapidly than Mumbai or Chennai or Calcutta or

13


erstwhile competitors in the information technology market (not shown) like Pune. That

growth was heavily buoyed by software exports, which reached more than 13 billion dollars

in the state of Karnataka in the 2007-2008 time period. 12

Figure 2: population Growth of Major cities (1971 2009)

1.0

2.0

3.0

3.5

4.0

2.5

1.5

1971 1981 1991 2001 2009

Year

Gro

wth

Inde

x (1

971=

1)

Delhi

Bangalore

MumbaiCalcutta

India

Chennai

Source: Census of India

As Table 1 shows, Bangalore has also become increasingly wealthy. Real incomes grew

by 73% between 1998 and 2005. This growth was much faster than the growth of India as

a whole. In 1998, Bangalore incomes were 24 percent higher than the Indian average. Today,

Bangalore incomes are nearly seventy percent higher than the Indian average. The gap has

been widening between incomes in Bangalore and those in the state of Karnataka, which

surrounds it, as well as the gap between earnings in the city and the rest of the sub-continent.

table 1: per capita Income in India, Karnataka, and Bangalore

(real 2005 rs) (real 2005 $s)

Year all India Karnataka Bangalore all India Karnataka Bangalore

1998 99 19,052 13,902 23,714 432 315 538

1999 00 19,752 17,219 32,539 448 390 738

2000 01 20,121 18,121 34,402 456 411 780

2003 04 22,682 18,931 34,369 514 429 779

2004 05 24,236 20,715 41,105 550 470 932

Notes: Karnataka and Bangalore income (in Rs) from Karnataka at a glance, Directorate of economics &

Statistics, Karnataka government. India income (in Rs) from Directorate of economics and Statistics, Planning and

Development. Income converted into real 2005 rupees using the CPI for all goods, from Ministry of Labour and

employment, govt. of India. Income converted to dollars using exchange rate data from the Reserve Bank of India.

All data found on Indiastat.com.

12 http://www.reuters.com/article/inDepthNews/idUSISL29485020080520

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Bangalore houses a large number of extremely wealthy Indians, and it is certainly a

prosperous place relative to the rest of the sub-continent. Yet there are also plenty of

poorer people in city. one estimate is that about 25 percent of Bangalores population lives

in the citys official slums, and about 20 percent of the people living in Bangalore would

be defined as poor.13 These numbers are low relative to other Indian cities such as Mumbai,

but since the urban Indian poverty line for urban dwellers is about 11 dollars a month,

they still imply a level of deprivation that is very high.14 Likewise, even though Bangalore

has a remarkable concentration of highly educated people, more

than 15 percent of the citys population is illiterate.15 While that

figure is low by the standards of India and Karnataka, the fact that

Bangalore is home to almost a million people who cannot read or

write suggests that the city isnt just home to software engineers.

That fact isnt surprising and it certainly isnt any sort of

indictment of Bangalore. India is still a relatively poor country and

there is free migration across cities and towns. Any successful

place is going to attract thousands of migrants and many of them are going to be poor. As

such, the fact that there are hundreds of thousands of poor people in Bangalore is best seen

as a reflection of the citys success and ability to provide opportunity for poor migrants.

13 http://www.archidev.org/IMg/pdf/governance_economic_settings_and_poverty_in_Bangalore.pdf; http://www.ces.iisc.ernet.in /energy/water/paper/bangalore/TVR24_p11_Bangalore.pdf

14 http://planningcommission.nic.in/reports/articles/ncsxna/ar_pvrty.htm15 (Indicus 2006)

even though Bangalore has a remarkable concentration of

highly educated people, more than 15 percent of the citys

population is illiterate

15

chaptEr 3

UNDeRSTANDINg BANgALoReS SUCCeSS

Bangalores success ultimately comes from its role as a conduit between India and the

worlds wealthier nations. Like Silicon Valley, it specializes in connecting smart, young

software entrepreneurs who hop from firm to firm. The skills that they acquire in Bangalore

are, if anything, even more important than those that their U.S. equivalents learn in Santa

Clara County, because those skills involve accessing markets on the other side of the world.

Bangalore is ultimately a place where human capital is created that enables innate talent to

find its niche in the global market.

Cyber-seers have long suggested that information technology seemed likely to make

cities obsolete. There is little evidence to support this view (glaeser and gaspar, 1998), and

much evidence to support the alternative view that technological changes have made cities

increasingly important. one of the most telling facts is that the center of new technologies,

Silicon Valley, is also the leading modern example of geographic concentration of industry. If

information technology made the need to meet face-to-face obsolete, then why would so

many information technology firms cluster together in a dense, expensive area?

The alternative view is that technological change has increased the returns to skill.

This fact has been shown in scores of papers, which have illustrated the rise in returns to

formal schooling (e.g. Katz and Murphy, 1992) and increasing returns to unmeasured skills

(e.g. Juhn, Murphy and Pierce, 1993). New technologies are difficult and require training, but

they also create more opportunities for people with skills. globalization has a similar effect.

While competition with Japanese car manufacturers has caused a great deal of difficulty for

the auto-makers of Detroit, global markets are a boon to the most skilled workers in Wall

Street and Silicon Valley.

Cities, like Bangalore, are in many ways like schools. Just as universities agglomerate talent

and enable students to learn from each other and occasionally also from professors, cities

also connect smart people who learn from one another. As the great english economist

Alfred Marshall wrote more than 120 years ago, in dense agglomerations the mysteries of

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the trade become no mystery but are, as it were, in the air.16 Some of this learning occurs

within firms, but average tenure rates in the software industry are so low that much of

the skills acquired by any given worker have been learned outside of his or her current

employer. Statistically, this phenomenon shows up in the faster wage growth experienced

by workers in large cities (glaeser and Mare, 2001). Certainly, my discussions with software

workers in Bangalore confirmed the importance that they placed on connecting with one

another to learn new skills and uncover new opportunities. That knowledge, which is a gift

of the city, complements the skills that they learned in school.

The advantage of proximity explains why three of Indias billionaires come from a single

company: Infosys. People got enormously rich because they were part of a joint enterprise

that became Bangalores second largest software giant. Infosys was founded in 1981, moved

to Bangalore in 1983, and has been one of the areas great success stories since then. In the

summer of 2008, the company had close to 100,000 professional employees and a market

capitalization over 30 billion dollars.17 Today, the firm is a flat world phenomenon, with vast

operations in software, banking services, and consulting. Its campus in Bangalore is techno-

luxurious, with plenty of lush gardening to remind you that you are in the tropics.

Infosys is ultimately selling intelligence provided by humans or machines at lightning

speed anywhere across the world. The company is regularly rated among Indias best

employers, and it is right to treat its workers well. The companys strength is its human

capital. The companys founder, Nagavara ramarao Narayana Murthy, once said: our assets

walk out of the door each evening. We have to make sure that they come back the next

morning.18 The company takes training seriously, formally training thousands of people each

year in its 4,500 capacity training center in Mysore. In a typical year, less than 1 percent of

Infosys job applicants get a place in that training center, making it more competitive than

Harvard University.19

Infosys began in 1981 with seven software engineers, who were a lot less wealthy than

they are today. The leader of that pack was N. R. Narayana Murthy, a Brahmin, born in 1946

during the last years of the Raj. He received engineering degrees from the University of

Mysore and the Indian Institute of Technology at Kanpur. He spent the seventies working

as a software engineer for Indias top business school, and then worked, briefly, for Patni

computer systems, in the city of Pune.

Patni was a bridge company an early connector between the U.S. and India. Its

founders, Narendra and Poonam Patni, lived in the U.S. Narendra had gone to M.I.T. on

a fellowship. His wife, Poonam, set up a back office in Pune which was one of the early

examples of off-shoring software. The seven founders of Infosys were working together in

Patnis Pune operation, where they had the opportunity to learn how to connect Indian

talent with American markets.

In 1981, those seven left Patni to found their own company selling software to

American clients. Murthy borrowed 250 dollars from his wife to cover expenses. In 1982,

they acquired their first foreign client Data-Basics, an American software company. In 1983,

16 (Marshall, 1920)17 http://www.infosys.com/about/who-we-are/history.asp18 http://www.highbeam.com/doc/1g1-132692533.html19 http://www.internationalreportingproject.org/stories/detail/harder-than-harvard/

17


they moved to Bangalore to provide software for a big new client: spark plug producer

MICo (Motor Industries, Co. Ltd.). MICos presence in Bangalore reiterates the point that

the city connected east and west long before the rise of software.

MICo is a subsidiary of the Bosch group, a vast industrial conglomerate founded by

Stuttgart engineer, Robert Bosch, in 1886. 120 years later, Bosch continues to be among the

most patent-intensive companies in the world. In 1954, the firm opened its Indian subsidiary

in Bangalore, and german engineering know-how made its way to India.

The importance of proximity to the spread of ideas explains why MICo wanted Infosys

to relocate to Bangalore. Bangalore had other advantages. In those days, expenses were

lower in Bangalore than in Pune or Mumbai. Most importantly,

there were more engineering colleges in the South [i.e. near

Bangalore] and their quality was better too.20 An abundance of

skilled engineers made Bangalore attractive to Bosch in the 1950s

and Infosys thirty years later.

over the past 25 years, Infosys has continued to expand as

a conduit between Indian expertise and western markets. The

firm has opened offices in the U.S., Canada Latin America and

europe, yet it has remained rooted in its home city of Bangalore.

It was one of the firms that worked to solve the Y2K problems

that threatened the worlds computers. It has become a business

consulting firm with more than four billion dollars worth of

revenues. At Infosys, smart people in Bangalore get rich by solving

the worlds software problems. In one sense, the company is a symbol of the worlds flatness.

In another sense, it is a symbol of the importance of being in the right place a city that

succeeds by making ideas.

The Infosys story highlights the collective nature of Bangalores innovation and the role

that cities play in connecting countries. At the beginning, MICo wanted Infosys to be in

the same city, presumably to improve the information flows. Today, Infosys trains thousands

of young software engineers, many of whom leave and start their own companies, often

in Bangalore. Like Wipro, Indias other software giant, Infosys is a talent incubator that has

helped to create a localized pool of talent.

Bangalore has experienced a self-reinforcing virtuous circle where an initial advantage

has spiraled into greater growth. An initial concentration of firms, such as Infosys and Texas

Instruments, made the city an attractive place for young talent to migrate. As the talent

came to Bangalore, firms also came, and the talent itself broke off and set up its own

companies. A similar process, of course, occurred in Silicon Valley, where an initial firm

(Shockley Semiconductor) first attracted talent and then let that talent go. A brilliant set of

young entrepreneurs first moved collectively to Fairchild Semiconductor and then split off

to form a number of strikingly successful Silicon Valley firms, such as Intel and Kleiner Perkins.

The initial concentration of firms and talent then attracts further complementary

inputs. For example, venture capitalists find it easier to come to an agglomeration of talent.

20 The quotation is from Barthi (2008).

Cities, like Bangalore, are in many ways like schools. Just as universities agglomerate talent and enable students to learn from each other and occasionally also from professors, cities also connect smart people who learn from one another

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American and european clients find it easier to come to a single city rather than travel

across all of India. Yes, it is possible to run a call center off in the middle of nowhere, but

high skilled innovative work functions best in a single dense locale. In India, Bangalore is the

biggest example of such a locale.

Today, the talent pool trained by Infosys is itself an attraction for yet other firms. When

Infosys opened an office in the Kerala Technopark, this was seen as a draw for other

enterprises.21 Successful firms, like Infosys and Wipro, also train workers who eventually

become entrepreneurs themselves creating yet more employment in Bangalore.

21 Iyer, Lakshmi (2008) Punjab and Kerala: Regional Development in India, Harvard Business School Case 9-707-008.

19

chaptEr 4

THe RooTS oF BANgALoReS SUCCeSS: eDUCATIoN, INFRASTRUCTURe AND AMeNITIeS

Asia is full of cities. What forces determine which of these places explode as engines of

economic growth? Hong Kong and Nagasaki were fated for their roles by acts of government.

The Tokugawa forbade europeans from going anywhere else but Nagasaki. The British protected

Hong Kong. But what magic made Bangalore into Indias information technology capital?

Bangalores backers will argue that Bangalores climate is more temperate than that of

much of India and surely that is a help. After all, Shockley himself was drawn to Silicon Valley

by its temperate Mediterranean climate (as well as the presence of his mother). Moreover, for

more than a century Bangalore has tried to have technology-friendly infrastructure, such as its

early hydroelectric dam, although most entrepreneurs I spoke to were less than enthusiastic

about the quality of that infrastructure. The industrial clusters, like

the electronics City assembled by KeoNICS were surely helpful

in providing relatively good infrastructure. These office parks may

create some agglomeration benefits, but even more importantly,

they provided self-contained urban units with access to modern

public services.

Yet, comparing Bangalore with other developed, and even

many developing places, suggests that it is the human capital, not

the climate or infrastructure that is unusually good. Indeed, it can

certainly be argued that one of the key reasons why Bangalore

specializes in software is that software requires much less

infrastructure than traditional manufacturing. Roads are less important. Communications

technology is provided privately; Texas Instruments went so far as to use its own satellite

dish to move software back and forth between the U.S. and India in the early days. one of

one of the key reasons why Bangalore specializes in software is that software requires much less infrastructure than traditional manufacturing. Roads are less important

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the attractive things about software in a developing country is that the ephemeral nature of

the product makes it less vulnerable to public sector failures.

Skills are the bedrock on which Bangalores growth rests. Cities that thrive as centers for

idea creation succeed by connecting smart people. An initial kernel of engineering expertise

attracted firms, like Infosys, which then started a virtuous circle where smart companies and

smart workers come to a city to be close to one another. In the U.S, we see this process

in the strong connection between skills and city growth shown in Figure 1. Across Indian

regions, Arora and Bagde (2006) show a strong connection between engineering students

in 1988 and the growth of the software industry between 1990 and today.22 Just as skills

predict the success of American cities in the information age, skills explain which Indian cities

have managed to succeed in software.

I have already discussed the early roots of human capital investment in Bangalore.

Compulsory education came early to the state and the Maharajahs, along with Sir MV,

strongly supported schooling. Sir MVs motto was industrialize or perish, but instead of

just pushing big infrastructure, he emphasized the education needed to build those projects

efficiently.23 In the U.S. and europe, education was rarely linked to industrialization. After all,

one of the big points of textile mills and assembly plants is that they could use ordinary

people, not skilled artisans. The American high school movement began in wealthy, rural

Iowa, not industrial Chicago. But for Sir MV, industrialization meant training the engineers

who would know how to import technology from the west. Since schools were a necessary

ingredient in his plan to industrialize India, he founded both the

University of Mysore and Bangalores engineering college, which

now bears his name. Those schools were the starting point for the

cluster of educated engineers that persists to this day.

Today, there is an astonishing density of engineering students

in the areas around Bangalore. Fifteen percent of Bangalore has

some form of post-secondary degree, which is about double the

rate for Karnataka and India as a whole.24 In 2004 2005, there

were 750,000 engineering and technical students in India. of

these, 97,000 were in Karnataka and 170,000 were in neighboring Tamil Nadu.25 These two

states, which together have about 10 percent of Indias total population, have more than 35

percent of the countrys engineering students.

The human capital of Bangalore is not just a product of formal education, but also of

skills learned outside of school. Today, the skills of the software industry are acquired by

working in that industry, but some of Bangalores early edge in human capital came from

its role as a center for other forms of high tech industry, like Hindustan Aeronautics. These

original high tech employers helped attract a critical mass of engineers to Bangalore, which

then became a self-reinforcing process since human capital-intensive firms, like Wipro,

Texas Instruments and Infosys, came for the workers and more workers came for access

to those firms.

22 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=964465)23 http://www.karnataka.com/personalities/visvesvaraya24 Census of India, 2001.25 http://mospi.nic.in/rept%20_%20pubn/sa_ab_2007/sa_06_education.pdf

Skills are the bedrock on which Bangalores growth rests. Cities that thrive as centers for idea creation

succeed by connecting smart people

21


The importance of skills is shown in the connection between skills and city growth in

developing countries and the connection between skills and the software industry in India.

The importance is also shown by the fact that workers earn more

money when they labor around skilled people. Today, holding an

individuals own years of schooling constant, that persons income

goes up by eight percent, on average, as the share of college

graduates in that persons metropolitan area rises by 10 percent

(Moretti, 2004). Thus, the expected income for someone with

exactly 16 years of schooling is predicted to be about 24 percent

higher if that person works in a city, like Minneapolis, where 41.4 percent years of adults

have college degrees, than in Cleveland, where 12.5 percent of adults have college degrees.

These human capital externalities take many forms, and they are at work in Bangalore.

one reason for human capital externalities is that people learn from each other and

become more skilled through proximity to people with skills. In Bangalore, this shows up in

the young software engineers who acquire skills working at firms like Infosys or MindTree. A

second reason for human capital externalities is that the products involve joint production,

and so one persons output may be compromised if he or she is working with less-qualified

partners. The extreme of this phenomenon occurred in the faulty o-rings that brought down

the space shuttle; getting one minor part wrong was enough to scuttle a huge enterprise

(Kremer, 1993). In the case of Bangalore, software engineers work with each other to

produce code, and one glitch can compromise an entire program.

The heart of Bangalore is its software industry, but that industry itself only employs a

modest number of the areas employees. In an interview, one information company leader

estimated that each one of his workers is responsible for providing eight more jobs in

the region. Though there is no way to verify this number, it would be far higher than any

equivalent U.S. number. Thus it highlights a way in which Bangalore is quite different from

Silicon Valley.

Santa Clara County, California, is a rich place, where high housing costs make it extremely

inaccessible to poorer Americans. As a result the software millionaires in Silicon Valley may

buy expensive cars and houses, but they, generally, do not employ vast amounts of low-

skilled labor, either at the company or at home. Bangalore is different. India has vast numbers

of the poor, and Bangalores own land use restrictions do more to hinder the construction

of buildings for the prosperous than dwellings for the poor. Poorer Indian urbanites often

reside in extraordinarily dense, extra-legal dwellings. Since the government is not capable, or

interested, in enforcing its land use regulations on Indias slums, those slums can house vast

numbers of Indians, giving them access to the economic opportunities of growing urban

areas like Bangalore.

The presence of the multitudes of poorer workers creates tremendous challenges for

the city, which I will discuss in the next chapter, but also helps define Bangalores economy.

While Silicon Valley is something of a millionaires enclave, Bangalore is not. The Indian city

is a very mixed city with vast numbers of poorer Indians who work, particularly, in personal

service jobs. While it isnt obvious that a poor American could come to Palo Alto and find

opportunity, the mixed jobs of Bangalore appear to create much more of a ladder for rural-

The presence of the multitudes of poorer workers creates tremendous challenges for the city

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urban migrants. Bangalore is full of small entrepreneurs who either amassed capital through

early wage-earning or through their families, and are gradually rising by running small shops

or restaurants. Ultimately this economy is buoyed by the highly skilled engineers dealing with

the outside world, but there is plenty of internal entrepreneurship as well.

23

chaptEr 5

PoLICY LeSSoNS AND CHALLeNgeS

Bangalores success touches on four different policy spheres. First, the role of KeoNICS

raises the question of industrial policy. Did the government choose software and did that

choice make Bangalore? Second, the growth of the city leads to questions about urbanization

in the developing world. Should cities be encouraged or restricted? Finally, the very success

of the city and the vast flow of migrants create challenges in providing basic urban functions

such as fast commutes and clean water. I will address these three policy areas in turn.

Bangalore, Industrial Policy and education

Bangalore is certainly a success, and the natural reaction to such a success is to try to use it

as a model for other cities. But this would be a mistake since many of Bangalores attributes

have had little to do with its success. At the ridiculous extreme, no one could claim that

Bangalores congested roads played some magical role in making the city succeed. Surely,

the opposite is true, and Bangalore succeeds despite its congestion, not because of it. It is

only when the example of Bangalore can be combined with knowledge gleaned from urban

development elsewhere that reliable lessons can be drawn.

For example, the connection between education and Bangalores success is backed by

cross-state statistical work in India and elsewhere. The strong statistical connection between

engineers and growth in the software industry across states supports the importance of

this channel. The fact that education is strongly associated with urban success and innovation

in other countries further buttresses this interpretation of Bangalores achievements. Finally,

the cross-country work on education and economic growth provides a last bit of support

for the education interpretation of Bangalore.26

There is, however, less evidence supporting the view that Indian industrial policy played

a major role in Bangalores role as a software capital. For example, the same statistical

26 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=964465

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work that confirmed the importance of education found a negative correlation between

software growth and lagged industrial output.27 electronics production in 1990 had only a

marginal impact on subsequent expansion in the software industry. These results should

make us wary about attributing Bangalores current success to the post-war public sector

development of heavy industry and electronics in Bangalore.

Moreover, there is an abundance of data suggesting the

problems with state led industrial development. India itself, which

stagnated for decades before economic liberalization, has often

been a primary example of the costs of trying to micro-manage

the growth process. even in Japan, where industrial policy at least

seemed to be more successful, the best evidence showed that

state planners got things wrong. Beason and Weinstein (1996)

document that Japans vaunted Ministry of International Trade and Industry (MITI) generally

picked losers. In Bangalore as well, at least since 1980, the growth engine has been led by

private entrepreneurs not publicly supported enterprises.

While it is hard to find good arguments for old style industrial policy, the case for

public support of industrial parks, like KeoNICS electronics city, is more debatable. on one

level, the familiar arguments resurface. Will the government actually be any good at picking

winners? Wont public officials just go after the latest fad, whether or not their region has

any comparative advantage in the activity? Can the public sector really micro-manage the

unpredictable interactions that make urban agglomerations special?

on the other hand, if the public sector cant provide decent infrastructure everywhere,

and if there is clearly private demand for a small island of good services dedicated toward a

particular industry, then there is more of a case for such parks.28 There may be agglomeration

benefits, but even more importantly, such centers may provide the only chance of providing

cutting edge firms with decent infrastructure. The second argument is stronger than the first

because it isnt obvious that concentrating firms is the right strategy, even when such firms

generate lots of geographically concentrated spillovers. If the firms all locate together then it

is more difficult for them to learn from and teach other industries.

The presence of agglomeration economies doesnt imply that

the benefits that come from concentrating firms outweigh the

benefits of dispersal (glaeser and gottlieb, 2008).

However, the benefits of having at least somewhere where the

roads are paved and electricity runs seem clearer. Since different

industries need different public services, it may be appropriate

to have industrially specialized geographic regions that deliver the

services needed by particular firms. of course, this argument doesnt suggest the need for

subsidy. If these firms are really productive then they should be able to pay for the services.

But it does suggest that when governments cant provide everything everywhere, then

industrial parks may be a way of providing something somewhere.

27 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=96446528 Laura Alfaro and Lakshmi Iyer (2009) Special economic Zones in India: Public Purpose and Private Property Harvard

Business School Case 9-709-027.

Across countries there is an almost perfect relationship between increasing wealth

and living in cities

The process of India becoming wealthy will invariably involve the

continuing growth of large cities like Bangalore

25


This is the relatively benign interpretation I would put on the Bangalore industrial centers

and suggest that they can be a model as long as they are given a limited interpretation. Since

so many cities in the developing world lack widespread, high quality infrastructure, it may be

appropriate to develop specialized areas that cater to firms that need that infrastructure.

But those areas should be self-financing, and, as in the case of electronics City, they will

probably function best if they are privately managed.

Bangalore and Urbanization

Bangalores success also sheds light on why development and urbanization are so closely

linked. Historically, too many Indian policymakers have accepted gandhis line that If India is

to attain true freedom and through India the world also, then sooner or later the fact must

be recognized that people will have to live in villages, not in towns, in huts, not in palaces. 29 As Figure 3 illustrates, across countries there is an almost perfect relationship between

increasing wealth and living in cities. Within countries as well, the correlation between city-

size and incomes is extremely robust, particularly in the developing world.

Figure 3: relationship Between Increasing Wealth and Living in cities

0

30

60

70

40

10

4

Log of Gross Product per Capita, 1998

Perc

ent

of P

opul

atio

n Li

ving

in U

rban

Are

as, 1

998

Bulgaria

5 6 7 8 9 10 11

80

90

100

50

20

Armenia

Austria

Australia

Central African RepublicChile

Bolivia

Bosnia and Herzegovina

Bahamas

Channel Islands

BelgiumAruba

Comoros

Bangladesh

Botswana

BarbadosChad

Canada

Albania

Angola

Congo, Rep.Azerbaijan

Argentina

Burkina Faso

Cambodia China

ColombiaBelarusBrazil

BelizeBhutan

Cape Verde

These facts do not mean that rural farmers such be forced to move to cities or

that the government should artificially inflate the size of cities, but it does imply that

the process of India becoming wealthy will invariably involve the continuing growth of

large cities like Bangalore. After all, the connection between economic development and

urbanization is not just a statistical regularity, but also a matter of basic economics. one

reason for the association between urban growth and development is that improvements

in agricultural technology are generally labor-saving, and as a result, workers leave the

farms as countries become more developed. The second reason is that development

29 From a letter from gandhi to Prime Minister Jawaharlal Nehru on october 5th, 1945.

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involves the switch of labor to goods, in which cities have a comparative advantage in

both production and distribution.

Bangalore illustrates this claim. The citys older industries exploited traditional urban

advantages, like the ability to exploit returns to scale in large factories. Bangalores Binny Mills

was one of a long series of large textile producing companies. Big cities were natural places

to put these factories both because cities had the labor force to man them, but also because

cities had other inputs. In the case of Bangalore and textiles, electricity was critical. Cities

have also typically sat at the center of transport networks which

made it easy to import inputs and export the finished goods.

While many prognosticators thought that the switch to

information-intensive services would eliminate the advantages

of cities, Bangalore illustrates that these sectors are particularly

prone to locate in dense urban areas. It is true that the traditional

transportation infrastructure is relatively unimportant in the case

of software. Bales of cotton are not being shipped in, and reams

of cloth are not being shipped out. Perhaps the most important

transportation-related advantage that Bangalore enjoys is its airport, with direct access to

airports throughout the world that enables clients and investors to come to Bangalore.

The airport is important, but the most important reason why the software industry is

so concentrated in places like Silicon Valley and Bangalore is that the industry is enormously

collaborative. The production of ideas always is, because the ability to learn from one another

may be humanitys greatest asset. Certainly, it is possible to write code on an isolated hill-top,

but the writer doesnt learn much in isolation. Instead, ingenuity is maximized is by working

together and then bringing the knowledge of one company to a new employer. In some

cases, like the googleplex, many of these intellectual collaborations can be fostered within

a firm, but as Saxenians (1996) analysis of Silicon Valley and Bostons technology cluster

on Route 128 makes clear, many of the most important advantages occur across firms.

Concentration enhances productivity because it increases the flow of ideas.

The worlds output is likely to become more information intensive over time and that

will only make cities more important. It is easier to connect over long distances, but there

will always be a slight edge associated with meeting in person. After all, human beings

have evolved to acquire a great deal of information from face-to-face meetings. As long as

meeting in person gives some edge, then the most information intensive firms will continue

to be drawn to urban agglomerations like Bangalore.

In the case of the developing world, the advantages of urbanization are even greater

because cities are the places that connect poor and rich countries. Indias software industry

is particularly information intensive, which makes it so naturally urban, but even in goods-

producing sectors in the developing world, cities create advantages because they are the

entry points for foreigners. While mature industries will always leave cities and move to

lower cost areas, the cutting edge of industry will depend on the newest ideas and those

are easier to access in urban areas.

gandhis vision of India was extremely static. He envisioned a land of independent

farmers, spinning their own thread. While there may be spiritual beauty in that vision, it

In the case of the dev eloping world, the advantages

of urbanization are even greater because cities are

the places that connect poor and rich countries

27


is not a recipe for economic development and the benefits, such as health and longevity,

which come with that development. Connection and knowledge are the harbingers of

development and cities make those things possible.

Bangalore and City Services

As such, I see little to like in policies that artificially limit the growth of Indias cities. Yet the

continuing growth of Indias mega-cities, like Bangalore, will continue to create their own

problems. given all the economic advantages of urban concentration, it is more sensible to

address those problems directly rather than to try to solve the problems by limiting growth.

When poor farmers come to cities, they have a better chance of becoming prosperous, but

great migration flows do crowd urban infrastructure, causing deterioration in water quality,

congestion and limits on housing. The true urban agenda is to improve the public sectors

performance in these areas.

The need for a capable public sector increases dramatically when large numbers of

people crowd into a small land area. Human beings impact one another, both positively

and negatively, when they live in close quarters. Some of those interactions are benign,

but others are less so, such as the impact that one persons refuse has on the quality of

someone elses drinking water or the impact that one persons

driving has on the traffic times of everyone else on the road. In

cities, people generate negative externalities towards one another

and these require some form of public management.

In many cities, crime provides a particularly obvious example

of adverse interpersonal interactions, and no one would doubt

the need for a competent public sector to protect life and limb.

Indias cities are relatively safe, which may reflect well-functioning

social groups more than the police. Whatever the reason, crime is

not the great problem of urbanization in India.

Perhaps the most pressing public sector problem in Bangalore

and other Indian cities is the provision of decent sewage and clean

water. The limitations of the water system are illustrated by the

large numbers of people in Bangalore who use ground water (one estimate is 30 percent),

which is extremely polluted.30 Bangalore does have access to nearby rivers, but the water

that is piped in is often also of low quality. The public health consequences of water-borne

diseases make this a pressing problem for Bangalore and much of urban India.

The problems of water are, of course, linked to limitations of the sewage system. In

many developing countries, sewage pipes intermingle with the water supply spreading

disease. In other cases, toilets are so limited that people often just defecate on the ground.

In one study from the 1990s, 100,000 residents of Bangalore were found to be sharing 19

public toilets.31 Providing decent sewers and clean water is expensive and difficult, but it may

be the most important task facing rapidly urbanizing areas.

30 http://www.indiawaterportal.org/data/datastats/ka/gWQualityIntro.pdf31 http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN020773.pdf

gandhis vision of India was extremely static. He envisioned a land of independent farmers, spinning their own thread. While there may be spiritual beauty in that vision, it is not a recipe for economic development

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Bangalore also faces a terrible congestion problem, which itself, of course, can be

understood as the natural result of too many people trying to use too little road space. one

source estimates average commute times at around 40 minutes, which is less than Mumbai

but still longer than any American city. 32 The relatively dispersed nature of employment in

the city means that it can take an hour or more to get from one technology firm to another.

These high time costs are not as threatening as water-borne diseases, but they are a serious

urban disamenity.

The city is currently building a train system, but it seems unlikely that this system will

alleviate the citys congestion problem. After all, Bangalore is likely to continue growing and

millions of people will still use the roads. Moreover, trains are an extremely expensive means

of providing public transportation, and they will have difficulty connecting the dispersed web

of firms within the city. Improved management of Bangalores roads is certainly needed.

The most cost effective means of reducing congestion is to make better use of the

existing roads infrastructure, which would require combining better bus service with a

congestion charge. Congestion charges ensure that the users of public roads recognize

the social costs of their actions. Singapore instituted such a charge in 1975, when it was no

more developed than Bangalore is today, using a simple non-electronic system. London has

achieved impressive results with its congestion charging system as well. The great advantage

of congestion charging is that it has the capacity to directly impact the cause of the problem:

overuse of roads. Subsidizing alternative means of travel, like trains, is at best an indirect and

expensive means of achieving the same ends.

one problem with congestion pricing in Bangalore is that a reasonable charge will make

the roads too expensive for many poorer residents of the city. The best way to solve this

problem is to use the congestion charge revenues to increase bus service, as London has

done. By crowding more people onto large buses, the roads will

be used more efficiently without the enormous expense of a rail

system.

Bangalore is competing not only with other Indian cities but

also with places throughout the world. Many of Bangalores most

impressive entrepreneurs could easily move to Silicon Valley. The

economic opportunities in Bangalore help keep them in India,

but quality of life matters too. If Bangalores streets become too

impenetrable or if disease becomes too problematic, then skilled

people will leave. In a sense, quality of life policies are really better

seen as economic development policies.

A final major area is housing. The attractiveness of Bangalore

also depends on the quality and affordability of its housing stock.

Housing is best provided by the private sector, but inevitably the government plays a major

role, often creating regulations that reduce housing supply and increase prices. Mumbai,

for example, suffers enormously from an absurdly draconian land use system that radically

reduces heights in central areas. Bangalores rules are not nearly as bad as those in Mumbai,

32 http://www.payscale.com/research/IN/City=Bangalore/Commute_Time

If Bangalores streets become too

impenetrable or if disease becomes too problematic,

then skilled people will leave. In a sense, quality of life policies are really

better seen as economic development policies

29


but the city still could do more to improve its land use planning and especially to permit the

development of more districts marked with higher buildings. going up is a good substitute

for going out, and the elevator can be a faster form of transportation than the car.

As a concluding thought, it is worthwhile asking whether

Indias governmental system is well suited to the challenges facing

its cities. Much of the public power over Bangalore is lodged in

the hands of the Karnataka state government. That governments

primary constituents are still rural. As a result, the government

may be less likely to put the needs of its cities first. The situation

has been exacerbated by the delay in redistricting which caused

state legislatures to under-represent their growing cities for many

years. There is at least a case for considering more devolution of power in India to its large

cities. Many Indians will argue that Delhi is now a more pleasant place because the city has

more direct control over its public services.

Providing decent sewers and clean water is expensive and difficult, but it may be the most important task facing rapidly urbanizing areas

30

CoNCLUSIoN

Bangalore is an extraordinary place that has done as much as anything to change the

western image of India. It is a city built on knowledge and human capital. Its dense labor

markets connect smart workers to smart firms. Ideas flow readily both across entrepreneurs

and across software writers. The city also provides opportunity to

less skilled workers who are able to supply services for the areas

primary export industries.

In a sense, Bangalore is a model of how an urban agglomeration

can bring prosperity to a poor country. The city connects India

with the outside world, and it is a central conduit for the flow of

knowledge. The density of the city then enables that knowledge

to flow across workers. Its strength lies in a highly competitive, highly educated, highly

entrepreneurial workforce that has been given access to each other and to the outside

world in that city.

Bangalores success does not reflect the industrial policy of the post-war era. The

subsidization of heavy industry in the city certainly boosted its population for a while, but the

recent growth of the city has private roots. The primary public contribution to Bangalores

success is investment in education. The advantages of cities become greater when their

inhabitants are skilled and have more to learn from one another. Bangalores success should

remind us that education is the most important economic development policy.

Yet the quality of life problems in Bangalore also remind us that Indias public sector

has a long way to go to make it the equal of the countrys private sector. Clean water,

better sewage and less congested roads are all major objectives. Perhaps these goals can be

achieved with the current governmental system, but it may also make sense to consider a

greater decentralization of public power to make local governments more accountable to

their systems and to allow more innovation in the public sector.

Bangalore is a model of how an urban agglomeration

can bring prosperity to a poor country

31

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July 2010

Making Sense of BangaloreEdward L. Glaeser

Bangalore is a model of how an urban agglomeration can bring prosperity to a poor country.

The Legatum Institute is proud to publish this insightful study about one of Indias most

distinguished cities. Harvard Universitys Edward Glaeser, a well-known commentator

on urban issues, considers the historical path that brought this city from a small urban

agglomeration during the 1900s to the bustling centre of industry and commerce that it

is today. Through its careful analysis of the key drivers of Bangalores success, Making Sense

of Bangalore draws important conclusions about the citys future and lessons for other

metropolitan areas in todays rapidly urbanising world.

0764LEG_bangalore_cover_v6.indd 1 24/06/2010 10:42

2010 Publications Making Sense of Bangalore

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