On Coase and Cities

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Many times I need reassurances for my decision to stay out of India. Having escaped the stupidity of my country, I am still subject to the stupidity of my adopted one. But then I read this wonderful journal called The Mint and everything is fine again.

Companies face the eternal question all the time: “Should we do something in-house or should we out-source it?” This does not come out of Coase.  This is just common sense. Coase addressed the bigger question of why companies should exist at all.

Now someone has explained Bangalore using Coase. All I can say is congratulations. He has also dragged Haseeb Drabu, a better economist whose   passing comment on Delhi and Bombay got extended into this senseless column. The entire article stands on the confident “This is straight out of Coase” describing something which poor Coase did not even consider.

The point is not that Bangalore is Coasian. The point is that all cities are Coasian. All forms of “Organization” are Coasian. Bangalore existed before outsourcing, did it not? It existed because it could do import substitution, or export to its outskirts, other cities, the world at large. All cities exist for the same reason. It is not necessary to go back to Coase to explain the creation of cities, it might be enough to go back to kindly Jane Jacobs and her “The Economy of cities”.  If an article must be written about a city, it must say something non-trivial, like Las Vegas and Dubai did not exist before air-conditioning.

The Mint must be Coasian. Isnt that why they generate garbage in-house than import it directly from the WSJ?

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