a framework for reforming urban land policies in ... - UN-HABITAT

Box 3: Informal Development in East Delhi
After independence, the Viswas Nager area of East Delhi was transformed from an agricultural village to one of the
large centers for the production of copper wire and PVC-coated wire in Asia. Three factors triggered this growth.
1. A bridge was constructed across the Juma River, linking Viswas Nager to markets in Delhi
2. The partition of Pakistan and India caused an influx of Punjabi small businessmen to the area
3. The creation of a nearby government copper ingot industry
Viswas Nager’s growth was largely unconstrained by government regulations: government planners did not crack
down on building or business activities. Instead of having to follow strict land-use and zoning categories, merchants
and residents laid out small plots on 20-foot modules that could easily be combined or subdivided to make efficient
plots for small factories and houses. Unconstrained by zoning, businesses could be set up in houses and gradually
expanded (from one room to several).
In the face of political pressure and the obvious fact that Viswas Nager developed into a vital area, the government
provided paved roads and provision of 240 volt electrical service. Fueled by upgraded infrastructure and product
demand, Viswas Nager expanded rapidly. Lots were combined to make room for larger factories, and the absence of
planning and subdivision controls made it easy for the entrepreneurs to incrementally expand (Benjamin, 1991 in
Peterson, Kingsley and Telgarsky, 1991).
Land use regulations retard economic dynamism
2.26 Another worldwide problem affecting the productivity of firms is the extent and
complexity of government regulations. Municipal regulations over plant siting and construction,
business operations and licensing create enormous barriers for firms. As deSoto has vividly
illustrated in his book The Other Path, municipal regulations in Lima, Peru, require that
businesses obtain 11 different permits to establish a manufacturing plant. In total these permits
cost the equivalent of 32 monthly minimum wages and the entire process can take as long as ten
months to complete (see Figure 2-2). Just to set up a small shop requires the equivalent of 15
monthly salaries. Such red tape makes it difficult for small firms to start up operations and
ultimately limits economic growth. As deSoto points out, since the typical street vendor
(operating without a permit) makes about 14 minimum monthly wages, it is no surprise why so
few of them “go-legal” and establish a formally sanctioned enterprise (deSoto, 1989).
2.27 On a larger scale, some national or municipal governments have directly intervened in the
land market to decentralize large-scale industries. Most of these efforts have not been effective.
Between 1960 and 1980, the government of Brazil spent $14,000,000 to develop the Northeast of
the country by relocating firms from Sao Paulo. At an average expenditure of $15,000 per job,
such a policy is unsustainable and distorting (Hamer, 1985). In Bangkok, where the government
established new sites for industrial parks for firms, few industries relocated, and households
resisted moving as well. In Korea, India, and Venezuela, for example, laws have been adopted
that prohibit new industries from locating within cities. Policies that prevent the birth of new
firms kill the incubator effect of a city’s agglomeration economy and directly limit economic
growth (Lee, 1985).
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