In recent weeks, there has been much public discussion about how to turn Mumbai into an international financial centre. The debate is hardly surprising given the enormous success of financial mega-hubs like London and New York over the last decade. London is today more important to the world of business and finance than it was at the height of the British Empire. Indeed, London’s economic importance is so great that one could go so far as to argue that Britain is now just a country attached to London. Cities like Dubai and Singapore are busy trying to turn themselves into the hubs of their respective regions.

So what will it take to turn Mumbai into a major international financial hub? Much of the debate appears to have focused on how financial regulations can be changed in order to attract flows of international capital. Suggestions range from capital account convertibility to greater freedom to trade complex derivatives. Some of these suggestions are indeed pertinent but they miss the bigger picture — successful financial hubs are first and foremost “global cities” that act as clusters of human capital. Success depends entirely in the ability of a city to bring together talent because modern cities exist for the needs of people and not the needs of production. If the right people come, the economics follows.

In order to understand this point, one needs to step back and ask the basic question — why do cities exist at all in the 21st century? After all, the telecommunication revolution should have removed the need for people to congregate in expensive and congested urban agglomerations. Yet, certain kinds of cities have thrived even as they have become ever more expensive. There are two inter-related explanations. First, we have learned over the last decade that cutting-edge economic activity still requires face-to-face interaction because innovation, creativity and trust cannot be codified and e-mailed. Second, cities provide a clustering of amenities necessary for sustaining modern lifestyles — schools, hospitals, theatres, airports, restaurants and so on. Humans are social animals and crave this concentration.

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