Enabling Sustainable Economic Growth

Creating economic growth centers is an important step in promoting overall well-being of the country or a state. Economic grown spurred by any given sector in a region, creates a virtuous cycle of growth by attracting other forms of businesses and also improving economic indicators of the neighboring regions. 

For instance, Bangalore's meteoric growth over the last 25 years spurred by the IT industry, also enabled other forms of businesses like construction, hospitality, transport, etc. to also flourish. Similarly, it also created an impetus for growth in real estate and other businesses in the neighboring districts as well. 

However, complex systems do not just respond to specific initiatives, but they also tend to generate their own dynamics often acting in ways that can negate the earlier gains obtained. This is called the law of unintended consequences, often due to the emergence of perverse incentives. 

For instance, when I was a student in the 1990s, it took us 3 hours to commute between Bangalore and Mysore on the narrow 2-lane road connecting the two cities. In early 2000s, this narrow road was widened to create a well paved 4-lane road with a median between the two. Initially, this brought great benefits-- cutting the travel time to 90 minutes. But soon, by early 2010s, it took us 4 hours to commute between Bangalore and Mysore! This is because, this one good road attracted a lot of traffic and in turn, a lot of businesses, and in turn, a lot of housing projects along the highway-- soon saturating the capacity of the highway. 

When we have one growth center, it leads to a virtuous cycle and promotes more growth. But it also soon saturates, and the cost of maintaining the growth center slowly overtakes the benefits it brings. The chart below shows a typical trajectory of an intervention that brings about economic growth in a region. The initial impetus creates a favorable environment, leading to a rapid growth. But over time, the system saturates and costs starts mounting. Eventually, the system autocorrects to some extent to settle down in an equilibrium, which would be higher than where we started out (which makes the whole initiative a success), but lower than the initial promise. 

Coming back to the story of Bangalore, even after more than 25 years of IT-led growth, Bangalore has not created natural incentives for other growth centers to form in the state. The figure below shows district-wise percentage contribution to state GDP in the state. Bangalore Urban alone contributes 37.8% of the state GDP, while its immediate neighbor-- Bangalore Rural-- contributes just 1.6%! Today, Bangalore Urban that contributes most to the GDP of the state has one of the most congested traffic, acute water crisis, and a high cost of living. The benefits of economic growth are getting fast outpaced by its saturation crises. 

Image source: https://www.reddit.com/r/Bengaluru/comments/1fgfp0h/district_wise_gdp_contribution_of_ka/?rdt=55134

Most unitary initiatives to promote economic growth suffer from the problem of saturation-- where the very success of the initiatives leads to its eventual downfall. 

So, how do we strategize for economic growth that does not become a victim of its own success? In this regard, about 11 years ago, I had proposed a model called Development in pairs. I would recommend the reader to read through the earlier post separately. 

The primary idea behind this is to promote not one, but at least two (more than one), growth centers simultaneously. Each growth center needs to be far apart enough so that they don't merge into one big center, and near enough so that each offers a veritable alternative to the other. These centers should be connected with high-speed transit like RRTS and should enable free movement of people and businesses between the two. However, each center needs to be administered independent of the other in a "coopetitive" fashion. That is, while each center competes for businesses, each of them are promoted cooperatively as part of a larger plan. 

Not only does each growth center counter-balance the other, and bring about stability, we can even mathematically show that a paired setup gives better expected returns to its citizens. The approach to this proof is an adaptation of a famous experiment in Game Theory conducted at the University of Sussex, where a group of researchers threw breadcrumbs into a pond from two different ends to see how the population of ducks in the pond divide themselves. (This work is described in the book "A Beautiful Math" by Tom Sigfried).

Representative image generated by AI

Suppose there are N breadcrumbs and m ducks in the pond. And suppose that these breadcrumbs are thrown from only one end of the pond. Without any further assumptions, we can see that the expected payoff for any duck would be (1/m times 1/N) which is 1/mN. 

Now suppose that the overall resource is divided into two so that N/2 breadcrumbs is administered from one end and the other N/2 from the other end. This would also divide the duck population between the two ends. Now at each end, for each duck, with a probability of 1/(m/2) it can expect a payoff of 1/(N/2). This gives the expected payoff as 4/mN. Since all numbers are positive, 4/mN > 1/mN. 

We can also see that the former case of only one growth center can be modeled as a pair of growth centers, with the other growth center having a resource pool of zero. As we divide the resource pool between the two centers in different proportions, we see that the disparity in expected outcomes keeps lowering, with this reaching its lowest point where expected payoffs become equal between the centers. 

This is what I would call a sustainable growth center, with each center counter-balancing the other.  

So, will this pair of growth centers too saturate at some point? Surely, it will. And to address this, we can address the same strategy at a different granularity level by connecting two pairs of growth centers and organically grow a megaregion.