Thoughts on economics and liberty

How socialists and confused “planners” blocked change of land use for 280 ha of prime land in Mumbai

The story of socialists in Mumbai and how they harmed millions of Indians by blocking valuable land from alternate uses – from Bertaud’s Order Without Design.

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Land Use Change: Mumbai

The story of Mumbai’s cotton mills best illustrates the tragic consequences of freezing obsolete land uses in the hope of preserving jobs. Indian entrepreneurs built Mumbai’s first cotton mills in the middle of the nineteenth century in what was then an industrial suburb of Mumbai. In 1861, the American Civil War contributed to a large price increase for Indian cotton cloth (an external shock already occurring long before the spread of globalization). Consequently, the mills multiplied to employ, at their peak in the 1930s, more than 350,000 workers; they occupied an area of 280 hectares, not including worker housing. However, subsequent competition from other Asian countries and from more modern mills built in smaller Indian cities made the higher price of cotton fabric manufactured in Mumbai increasingly uncompetitive on the world market. Because of outside competition, some mills had to close.

After World War II, more mills started closing, partly because as Mumbai developed, their locations in the middle of a dense and congested metropolis made them too expensive to operate. The productivity of the mills also kept decreasing: Given land expenses, no updates had been made to factories, making the factory layout and technology obsolete. A workers’ strike lasting more than a year in 1982 delivered the coup de grâce to Mumbai’s cotton mills. The story of the growth and decay of a textile industry is not unique to Mumbai; many European industrial cities, like Manchester and Ghent, went through the same cycles, produced by the same external forces.

However, as the Mumbai mills were closing, the municipality and workers’ unions, fought to preserve the high taxes and the well-paying industrial jobs produced by the mills. As a result, they prevented mills’ owners from selling the potentially expensive land on which the now-deserted mills had been built. Later, when it became clear that the mills would never open again, the local government imposed such draconian conditions3 on the redevelopment of the land that it became frozen in court cases. As a consequence, over the course of more than 40 years, an increasing number of mills stood empty in the middle of Mumbai, obliging the city to expand its infrastructure farther

 

north while by-passing the 280 hectares of already well-serviced area occupied by the empty mills (figure 3.1). In 2009, when some of the land formerly occupied by the mills was finally auctioned, the price reached more than US$2,200 per square meter! The total value of the mill land unused for about 30 years would be therefore around US$6 billion in 2009, or more than five times Mumbai’s capital budget for 2014.4

 

Figure 3.1

Vacant cotton mills in Mumbai, 1990.

 

The failure to realize that urban activities are transient and subject to uncontrollable external market forces led the municipality and workers to try, through regulations, to maintain obsolete activities and land use. They assumed that the problem of the failing mills was local and could be solved through bargaining among local stakeholders. In doing so, they prevented new jobs from being created on the very valuable land occupied by the vacant mills. The misunderstanding caused enormous hardship for the workers and damaged the city’s economy. It prevented new jobs from being created to replace the ones that had been lost. It forced an extension of the city’s infrastructure into new, more distant areas while already well-serviced land

 

stood empty.

Sanjeev Sabhlok

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