What do we learn from Detroit?

What do we learn from Detroit?

The Detroit city, the birthplace of American car industry, is in the news, driving towards bankruptcy. The Governor of Michigan, Snyder, has appointed...

The Detroit city, the birthplace of American car industry, is in the news, driving towards bankruptcy. The Governor of Michigan, Snyder, has appointed a black expert Kevin Carr as Emergency Manager to find out ways and means of overcoming the current crisis. The city is not able to provide street-lighting; no benches in the pathways and parks, 60-year-old trams not replaced; old buses ply on the roads; defaulted to pay pensions and so on. Further, the city has lost around two-thirds of its population between 1960 and 2013 from 20 lakhs to around 7 lakhs by now. This has impacted real estate.

It is said that a house now costs around $7500 and some old flats could be acquired for hundred bucks while many buildings are left in dilapidated conditions.

This is really a terrible state and a sight to abhor for emigrants. The Indian migrants reinforced the colour of the city that was already noted as Black. But the city flourished and several innovations, including Fordism, developed here to give a unique character to American capitalism. Now the collapse of the system conveys a message for infrastructure development in urban India, including cities like Hyderabad. How did this happen?

The provision of public utilities in Europe and America was based on their climatic conditions and the bounty they received from the colonies. Unfortunately, Indians have tried to copy them without an external colony. Perhaps, the policymakers had instinctively realised the existence of internal colonies (social and marginalised groups) and planned our infrastructure accordingly after liberalisation.

We are happy with the quadratic national highways across different regions and cultures by marginalising the local needs. They were aimed to link the four corners of the country for the free flow of goods without any hurdles to reach the ports passing through several special and export processing zones. They are considered as comparable to any other infrastructure of America or Europe in style and structure.

They contained a lot of foreign exchange component with very good margins for the contractors who became legislators in course of time. This is a very good model of development where we could provide facilities to people and, at the same time, give leadership to the nation.

It seems the models used here are the ones that were used during the time of Eisenhower and Roosevelt. Some American commentators tell us that Eisenhower spent money from the defence budget to create facilities to move troops across different States as a General during the Second war. He was visionary as the future President to create the interstate roads and infrastructure to connect the 50 States to become a strong United States of America.

But the problem, according to the President of the American Society of Civil Engineers (ASCE), B.D Leonard is that “we are still driving on Eisenhower’s roads and sending our kids to Roosevelt’s schools”. It means that the country has not invested on the maintenance or repairs or simply no provision was made for depreciation on the capital. It is estimated that there is a backlog of $ 2.2 trillion infrastructure in the country.

Infrastructure is basic framework of a system or organisation and stands fundamental for the development of a nation. It consisted of not only roads, buildings, power grids, communication systems, etc, but also the necessary manpower to be generated through educational institutions. It is not only in the US but in several European nations that the huge infrastructures were magnificently built when they were riding on high growth, to showcase their vanity (beyond their need). They have now started crumbling not only due to the downturn of the economies but even the declining size of the population made the capacity underutilized.

On August 1, 2007, the 1-35WMississippiRiverBridge collapsed killing 13 people and around that time the San Francisco-Oakland Bridge repairs became grave. It is reported that during the period of recession the percentage of expenditure on public construction as a proportion of the GDP in America declined. The Global Competitiveness Report 2012-13 estimated that the infrastructure score had come down from 6.1 to 5.8, placing the US at 25th rank.

India, being the third largest economy in the world in terms of size of the GDP, is ranked at 87th with a score of 3.8 in infrastructure capacity (in the same report). Perhaps, keeping this score and the need for world class infrastructure to facilitate free movement of wares, our Prime Minister wanted more investments into this sector. It has also the capacity to absorb more investment and create new jobs.

FDIs are, therefore, invited. But, we may reflect here on the kind of experiences the advanced countries have had in the era of free trade and the wealth so created and the consequences. Detroit can be taken as a case to project the kind of complications awaiting us. Detroit is in distress not due to any natural calamity, but a man-made disaster and due to faith in a model. It is easy to develop a model of growth based on free trade to benefit from comparative advantage or factor abundance of a nation. It is also noted in the theories of the economists that factors move in search of efficiency and productivity to yield higher rates of return in a no- holds-bar situation.

This is fine and data must have supported some of the theories or manipulated to suit the positive conclusions like our poverty estimates. But the issue is that when comparative advantage has driven the car manufacturers from Detroit under NAFTA, people abandoned the city leaving the infrastructure, buildings, pension funds, deferred payments etc that became a drain on the next generation. Perhaps, the economists thought that infrastructure, buildings, etc, would also physically move to destinations in search of fodder. This is impossible and unimaginative even if we take the monetary value of the transactions. Who is responsible for the present conditions of Detroit or situations of that nature?

The kind of huge infrastructure projects, including unwieldy irrigation, road, transport, flyover, arty underpass of contractor-based projects, need to be reviewed and only the relevant and cost-effective projects are to be selected to unburden the future generations. We need not replicate what others are doing if they do not suit our capacity and conditions. This is common sense and we do not need sophisticated models or advice of paid consultants. We have now a situation where Hyderabad city would likely become a metropolitan centre sucking the resources from the underdeveloped hinterland, the experience of the city of Detroit is a clear message.

K S Chalam

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