The planet of the slums

A majority of the world’s population now lives in cities. That brings opportunity. But it spells misery for millions too, says Eoin Gleeson.

Why is 2007 a watershed year?

This year, for the first time, the number of people living in cities outnumbers the rural population. That demographic balance is going to continue to shift in favour of urban dwellers as the cities in emerging markets swell with those seeking the gains of explosive economic growth. The scale of this industrialisation utterly dwarfs that of the Victorian age, says Mike Davis in his book Planet of Slums. London in 1910 was seven times larger than it had been in 1800. But today, Dhaka in Bangladesh, Kinshasa in the Congo, and Lagos in Nigeria, are each approximately 40 times larger than they were in 1950. By 2030, an estimated five billion of the world's 8.1 billion people will live in cities.

What's driving this urbanisation?

A full 90% of the expansion in the urban population over the next two decades will take place in China and India, where for the first time soaring economic growth has brought the dream of a better life within the grasp of a vast chunk of the world's population. But in other developing countries, migration to big cities is more a bid for survival than for prosperity. Prospects for small farmers in African countries have been devastated in recent decades by cheap farming exports from Europe, many subsidised under the Common Agricultural Policy. The World Bank and IMF have also played their part, says Davis. The introduction of Structural Adjustment Programmes in the Seventies and Eighties imposed strict conditions on governments to meet loan repayments by reducing subsidies and taxation. This had the effect of cutting off badly needed government support for domestic agriculture.

Can these new cities cope?

Some can cope better than others. As cities swell with rural migrants, pressure builds on the local economy to create new jobs. In the British industrial revolution, towns such as Manchester were "job machines", paving a road to prosperity for hundreds of thousands of people. The same can be said of the new cities in China that will emerge in the next 20 years, with migrant workers finding positions in the building and manufacturing industries. The trouble with long-established cities such as Delhi, Dhaka and Laos, however, is that the jobs simply aren't there in the necessary numbers. Of the 500,000 people who migrate to Delhi each year, it is estimated that 400,000 end up in slums. Around 85% of Kenya's population growth in the 1990s was absorbed into the slums circling Nairobi and Mombasa. So instead of the steel, glass and concrete metropolis of the popular imagination, the blueprint for many emerging market cities of the future is instead likely to be a heaving, densely packed slum. Already, 39% of China's urban population, 44% of India's and 99% of Ethiopia's, live in slums. According to the UN, by 2020 one in three city dwellers, a sixth of the world's population, will live in these conditions.

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Where will the problems hit hardest?

In many Asian, African and Latin American countries the pace at which slums are developing poses real problems. Free space outside cities is rapidly disappearing so that new arrivals have no choice but to build in dangerous areas, says Elizabeth Eaves in Forbes nudging up against railtracks in Delhi, on the hilltops surrounding Caracas and on the flood-prone flats in Dhaka. Without ready access to water, these slums are a hotbed for diseases such as dengue fever Asia is currently falling victim to the biggest outbreak of this disease in a decade, largely due to the scale of migration. Already in Kinshasa, average income has fallen to under $100 a year, two thirds of the population is malnourished and one in five adults is HIV positive.

So is there any good news?

With much of China and India thriving, prospects for many new migrants are bright. A 2005 study on Asia by the International Organisation for Migration notes that even if migrant jobs are in the risky informal sector, "the gains to be made are several times higher than wages in rain-fed agriculture". And Peruvian economist Hernando de Soto says a slum can be a thriving hotbed of small entrepreneurs' selling vegetables, doing laundry, even opening small bars and restaurants. If afforded property rights, these entrepreneurs can then borrow against their property to scale up their businesses. But in practice, argues Davis, the growth of this informal sector can't satisfy the slum's most basic needs clean water, medical care or education. So instead of creating prospering local businesses, the slum dwellers compete to do a few menial tasks such as selling handfuls of fruit, cutting hair, or prostitution.

What can be done to help slum dwellers?

Despite Davis's concerns, some believe the introduction of microfinance and Hernando de Soto's theories of property rights can go a long way to helping these cities absorb the scale of migration currently underway. As Robert Neuwirth points out in Shadow Cities: A Billion Squatters, extending property rights to squatter communities in Rio de Janeiro, Nairobi and Istanbul has encouraged substantial local investment in homes and neighbourhoods, sustaining a reasonable quality of life. The only catch is, as Eaves puts it: "that kind of legal reform presupposes a measure of democracy and good government that much of the developing world just doesn't have."

Eoin came to Money Week in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.

Eoin acts as managing editor of MoneyWeek's newsletters.