Slum Economics: The Ones at the Bottom Holding the Bottom Line

Economics – what kind of picture does that paint? Money? Stocks? A suit and tie? Graphs and government? All in all, it’s a pretty nice picture. Plotted out all neat and tidy.

However, we often forget that this picture is incomplete, it’s only a small puzzle piece in a global cipher. Economics as we know it, is a race track we’ve carved out in a world that doesn’t have capacity to hold all its contestants. And at the speed that we’re moving at, something has to be sacrificed.

Among the rubble we have left at the wayside are the 29.2% (2018, World Bank) of the population who live in slums. A product of the rapid urbanisation that accompanies our ideations of economic growth. Slums are rampant in developing countries where infrastructure cannot keep up with the incessant pace of economic progress. India is a prime example with 240 million living in informal housing with this group also contributing to more than 7.5% of the country’s GDP.

And this is where I believe many people incorrectly judge those who live in slums. Slums are treated as isolated bastions of poverty removed from our normal lives. However, urban slums are often created in close proximity to economic opportunity. For example, Benjamin Marx, under the American Economic Association, describes slums as a distinct feature of the industrial revolution, attracting migrants who were attracted to the economic growth present in the cities. In many countries they are the result of rural migration into an urban landscape promising more growth. This is very common and also very dangerous in countries which also have poor economic growth, such as Sub-Saharan Africa which houses the world’s largest population of slum inhabitants in the world.

These conditions are when slums are at their most dangerous – when they become poverty traps. In economics this is defined as a cycle of poverty caused by self-reinforcing mechanisms. You see, modernised economic theories acknowledge the intention to pursue economic opportunities from those living in slums. And so slums are envisioned as a transitory phase until formal housing can be introduced. However, these theories don’t seem to be aligning with reality. Many inhabitants in slums find themselves stuck in poverty traps unable to escape for generations. Many slums are growing and it’s estimated that by 2030, 1 in 4 people will live in slums. Simply, we cannot keep up.

But not keeping up can’t be our excuse. Economics shouldn’t be a race but rather a bridge across scarcity. In essence, it should be problem solving. And so how do we solve this problem? First, we need to understand what the mechanisms are which create this self-perpetuating cycle of poverty.

In the case of slums, these exact mechanisms are tied into their very definition. UN-habitat defines a slum as housing that lacks one or more of the following: durable housing of a permanent nature, sufficient living space, accessible and affordable clean water, access to sanitation, secure tenure which protects from forced evictions. These exact factors are also the main causes for the lack of upwards movement within slums according to Benjamin Marx.

The first of these main causes is the extremely poor health of those living in slums. The lack of basic sanitation, clean water and living space mean that a common feature of life in the slums is failing health. In terms, of economic opportunity this greatly impacts the potential of the working force. Ill health drains time away from both the ailed as well as family members who must take care of them, often children who are taken out of education. The main perpetrator is a lack of sanitary water and sewage systems. A case study on a Kenyan Slum in Sub-Saharan Africa found that 91% of inhabitants used wells for water which were found to all be highly contaminated due to the fact that most inhabitants also used pit latrines. In order to provide adequate sanitation, investments into infrastructure and public goods, focusing on sanitation, must be seen.

However, investment inertia is also a large cause contributing to the poverty cycle in slums. The informal nature of a slum contributes to this lack of investment into maintenance and upgrading not only from the government but also from the inhabitants themselves. Housing is highly insecure and with the eviction looming constantly, incentives to improve the quality of their homes or neighbourhood are very low. Additionally, a large proportion of slum inhabitants actually rent their homes. The landlords governing the slums aren’t overseen by any official authorities adding onto the fragility of the tenure as well as a lack of funds to invest due to high rent premiums. This highlights the importance of formalising slums as a way of creating secure and permanent housing.

Formalisation is also important to combat the current lack of policy effect on slums. Informal housing is, by name, informal. This means many government policies such as urban planning and upgrading projects also ignore slums. It also means those living in slums live without being able to access social security benefits and the people themselves are often forgotten by the government with frequent underestimations of slum populations. This causes issues as conventional projects targeting slums often demolish pre-existing slum housing, replacing it with planned infrastructure. However, without accurate information on the population, this often leaves many displaced and homeless. In order to tackle this issue one example includes the UN’s New Urban Agenda, which gives each dwelling a unique postal address. This simple solution allows inhabitants to create bank accounts, ID cards, access social benefits and also provides accurate data on slums.

Despite being placed far behind the starting line, those living in slums are still running in the race. However, how can they catch up if they aren’t even acknowledged as contestants? The cycle of poverty and the very nature of slum life have trapped them on an inescapable looped track. Actively pursuing policies which address the main causes of slum stagnation can create a bridge, opening up advancement out of the cycle. Instead of being the first to cross the finish line, our goal should be to make sure everyone makes it across.