Urbanization is essential to development. But poorly managed urban growth in developing countries has in many cases led to a surge in slums, which significantly degrade the lives of the urban poor and ultimately threaten the sustainability of cities.
Slums reflect both local governments’ limited capacity to accommodate swelling urban populations and policy failures. Refusing to provide services to the poor, razing informal settlements, and imposing restrictive building codes have done little to reduce urban growth while severely impairing the welfare of the urban poor. Incentives to reduce rural-to-urban migration have foundered on the fiscal costs involved. China’s hukou system has in fact curbed the growth of slums but at the cost of creating an underclass of urban workers and exacerbating rural-urban income differentials. More rational and humane policies could help reduce the growth of slums by enabling the urban poor to establish viable neighborhoods.
Cities Are the Future
Development means the growth of cities. In 1950, 20 percent of the developing-country population lived in cities. Today, 45 percent does and by 2050 two-thirds will. The global correlation between urbanization and per capita income is .57 and would be even higher if it were not for differences in the definition of urbanization.
Why do cities have such appeal? Firms are attracted to larger settlements due to the higher productivity that accrues from agglomeration benefits, including economies of scale in production, access to financial services, dynamic interactions among skilled workers, and proximity to labor, intermediate inputs, and large markets. For the typical industry, doubling the size of an industry raises worker productivity by 3 to 8 percent; doubling the size of the city while the size of the local industry remains the same increases productivity by 3 percent.
Workers flock to cities for the higher wages, which are made possible by greater productivity and more secure employment due to the presence of multiple firms in close proximity. And consumers also benefit from urban amenities that may not be available in rural areas.
But Congestion Can Be Costly
Urbanization also increases the cost of land and, as density increases, infrastructure. The marginal investment cost of absorbing an additional household in the average urban areas of Bangladesh, Egypt, Indonesia, and Pakistan, including the cost of utilities, public services, and housing, was estimated to be three times that in rural areas. Congestion increases pollution-related illnesses and traffic accidents, which are the leading cause of death for fifteen- to twenty-four-year-olds in urban areas. Crowding, coupled with the breakdown of traditional social norms, can increase the rate of crime and interpersonal violence.
The relationship between the net benefits from further urban growth and the size of a city is likely bell-shaped. At low levels of urbanization, increases in density generate large efficiency gains at low cost. However, as cities grow, the costs of further congestion eventually exceed efficiency gains. This may explain why urbanization in advanced countries is dominated by the growth of medium-size cities: from 1995 to 2005, advanced-country cities with populations between 500,000 and 1 million people grew half a percentage point faster every year than larger cities.
Developing countries are more diverse in terms of how further urban growth would improve efficiency. In many low-income countries, the agglomeration benefits from further centralization remain large. By contrast, some upper-middle-income countries may reap efficiency gains by encouraging the growth of medium-size cities. For example, beginning in the 1980s, Korea saw enormous gains from providing the transportation and communications networks that facilitated close contact between medium-size cities and the capital.
The poor suffer most from increased congestion due to inadequate water and sanitation, violence, and lack of access to health care. While many migrants are escaping even worse deprivation in the countryside, the deterioration in slum conditions degrades the urban experience for all and at the extreme may endanger the sustainability of large cities. Rampant lawlessness has resulted in near-chaos in some cities. In Rio, for example, vigilantes have beaten and killed homeless children to reduce shoplifting. Kinshasa is descending into a quagmire of violence and disease—more than a third of the city’s children are infected by malaria.
Slums in part reflect very rapid development, as rural-to-urban migration has outstripped the ability of local governments to provide services. After all, the urban transition occurred over the course of one hundred to one hundred and fifty years in advanced countries, but over only about thirty years in developing countries.
Misguided Policies and Possible Remedies
But slum conditions also reflect failed attempts by city residents to keep migrants out and thus preserve their neighborhoods and, in some capital cities, their monopoly on central government largesse. For example, Brazil under military rule razed informal settlements and limited public services in neighborhoods where migrants were likely to settle.
In many countries, restrictions on the size of lots, on the amount of unbuilt space within lots, and on the height of buildings, as well as government holdings of large open spaces, have raised the price of land, making it difficult for the poor to rent or construct legal housing. For instance, the maximum ratio of floor space per unit of land is 1.33 in Mumbai but 10 in Bangkok, which is an important reason why Bangkok provides much more affordable living space. Since better employment opportunities in cities continue to attract migrants, these policies do nothing to limit the growth of slums. Instead, they make urban living more precarious for the poor by among other things driving them to less desirable locations such as steep hillsides or flood plains, where services are unavailable and obtaining formal tenure is impossible. In turn, lack of legal tenure lowers residents’ incentive to invest in their homes and discourages utilities from servicing them.
Governments have also attempted to limit rural-to-urban migration directly. As of 2009, 72 percent of developing countries had such policies in place. Some have provided incentives to deter migration. But these efforts seldom work—often because they are not fiscally sustainable. For example, India’s guarantee of at least one hundred days of wage labor to adult members of rural households has had only a modest impact on rural-to-urban migration due to administrative difficulties in implementing the program and insufficient funding of it. And Indonesia’s offer of land tenure and access to subsidized services for individuals willing to move from more to less crowded islands had a minimal impact on population distribution, in part because the 1986 fall in the oil price forced reductions in resources devoted to the program.
Attempts to restrict the legal right to live in cities have a mixed record. In the 1970s Indonesia required migrants to Jakarta to find a job in six months or go home, with little impact on migration to the city. By contrast, Vietnam’s household registration system succeeded in limiting migration to urban areas.
China’s hukou system restrains the growth of slums by making it almost impossible for unemployed migrants to remain in urban areas. But it has also created a class of “temporary” migrants who are crowded into dormitories without their families and lack the right to health services, pension, and unemployment benefits, as well as property ownership. In addition, by slowing rural-to-urban migration at a time of rapid industrialization, China has developed one of the highest levels of rural-urban inequality in the world.
Freeing more government-controlled land for development, allowing more vertical construction, and loosening restrictions on the size of lots would lower the price of land and enable cities to better accommodate the urban poor. These regulations have some value: retaining open spaces and limiting massive apartment buildings can improve the urban environment. Moreover, the implications of more vertical construction on the ability of governments to provide services should be considered. But building restrictions need to be determined in light of their impact on the millions of people who make up the urban underclass, not just by more prosperous residents who wish to preserve their privileges.
Communities that provide essential services to new settlers and treat slums as the home of citizens to be helped rather than as urban blight to be razed have constructed much more livable cities. Some progress is certainly being made: the share of the urban population living in slum conditions in developing countries fell from 39 percent in 2000 to 32 percent in 2010, though the total number of slum dwellers has increased. Further progress will require recognizing that urban squalor is not just a transitional phenomenon driven by rapid development but results in part from policy choices.
William Shaw is a visiting scholar in Carnegie’s International Economics Program.