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A cul-de-sac of poverty May 3rd 2007 From The Economist print edition
Successful cities need economic growth Alamy ½
In many places, such as India, says Eduardo Lopez-Moreno, head of the UN's Global Urban Observatory, new migrants to the towns are no better off than they were in the country. And in poorer nations generally the proportion of urban poor is actually increasing faster than the rate of urbanisation. But the hope that keeps poor people in cities is not always vain. Asia shows that even a region in which 40% of the inhabitants already live in cities, and which is urbanising almost as fast as Africa, is not condemned to misery for ever.
In the early 1970s over half of Asians were poor; they could expect to live, on average, to an age of only 48 years; and two-fifths of adults were illiterate. Today the proportion of poor people is about a quarter, life expectancy has risen to 69 years, and about 70% can read and write. That does not mean that everyone has benefited. Far from it: Asia still accounts for two-thirds of the world's poor, of whom 250m are in cities. But even the urban poor of South Asia, who have been largely by-passed by the growth that has lifted East Asia, have reason to hope for better times.
Not much of it is coming the way it did in the 19th century, though. It is true that activists and donors are beginning to take an interest in cities, and ideas are now circulating about upgrading slums and attacking urban poverty. Some of these concern the problems of illegal squatting, which are now well known. With no title to your shack you have no incentive to improve it, no way to insure it, no collateral with which to secure a loan, no address with which to become an official citizen, let alone to open a bank account: you are locked in poverty. Yet there is money in slums, and enterprise—and numbers.
Getting it together Many ideas to unlock the enterprise turn on using the numbers. This can be done, say, by encouraging a majority of the local residents to form a savings group or a co-operative and ask the municipality to grant collective development rights, some of which may be used in the slum and some sold off. Other community groups, under a suitable leader, may be able to negotiate with a commercial lender and then hire a project manager to oversee the rehousing of several people. Or a group of co-ops may hire a financial intermediary.
A more top-down approach is to ask governments to issue land certificates indicating a range of personal rights rather than strict title deeds. This has worked well on a small scale in a dozen African countries. Vietnam has successfully brought in the concept of private leasehold. Other schemes involve a donor accepting the responsibility of upgrading a slum in return for a sovereign debt.
All these ideas have their merits and should be copied more widely. But the main conclusion to be drawn from the success stories is that few poor people in cities will grow richer if their local economy is not growing, and few local economies will prosper if the national economy is not also prospering. Cities often play a disproportionate role in the national economy. Mumbai accounts for 40% of India's tax revenues, for example; Tokyo accounts for a third of Japan's GDP; and over three-quarters of Senegal's industrial production comes from around Dakar. In absolute terms, too, cities can be huge wealth creators. Seoul's economy equalled the whole of Argentina's in the late 1990s, and Mexico City's equalled that of Thailand.
This is not to say that all cities will prosper in step with each other, or with the nation as a whole. In both rich and poor countries, some cities may flourish as others decline. Several metropolitan areas in America's Great Lakes region—never mind the cities at their heart, such as Buffalo, Cleveland and Pittsburgh—have long been losing inhabitants, their population is ageing and income growth has lagged behind rivals in other parts of the country.
In some respects cities compete with each other, even across borders. Fierce competition now takes place within India to win, say, a new BMW plant or a Nokia special economic zone. Similarly, Hong Kong and Shanghai vie to call themselves China's financial capital, just as New York and London vie for the world title. The busiest stock exchange may mean the lion's share of the market in financial services, and the jobs that go with it.
In general, though, one city's success does not mean another's failure. Only when they are competing for finite resources or a specific prize, an investment or the Olympic games, say, does one city stand to gain at another's expense. Most cities must therefore hope that they can benefit from a sound national economic policy. Even in an expanding economy, the benefits of growth do not always trickle down to the slums very fast. That is why other policies are needed, too. But in places where growth has been negative, notably Africa, it is well nigh impossible to eradicate slums. Even so, life for the urban poor can be improved.
