Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

An Economic Solution for Slums?

Written by johnleemk on 1:38:57 pm Jun 26, 2007.

While perusing the National Geographic May 2007 issue, I found an interesting conflict between slum-dwellers and the government. The frontpaged story of the Indian slum of Dharavi, located in the city of Mumbai (formerly Bombay) is a tale of incompetence and squalor.

From the article, it is clear that most of Dharavi's inhabitants lead lives of misery and lack the opportunity to escape the economic fate they are born into. The situation seems ripe for government intervention.

A Western-educated Indian has attempted to take on the problem by proposing to develop the slum area. It's an ambitious goal, since according to the article, all previous attempts to rehabilitate it have failed utterly.

The plan is running into stout opposition from none other than the slum dwellers. The reason? Because it creates equality of results.

The community leaders of Dharavi, who naturally are higher on the ladder in terms of both economic and political clout, oppose the plan because it allocates a flat of the same size to each family.

The flat may be free. It may have amenities that the slums of Dharavi currently don't. But because there is no way for these people to buy themselves a better flat, they refuse to allow the development plan to go ahead, basically dooming it to failure even if the government forces it through.

Basically, the problem is that the developer has assumed that the only roles Dharavi's inhabitants can play are as consumers and employees. The developer has forgotten that they too have capital, and they too have rights.

Hernando de Soto, a Peruvian economist, has concluded that what often stifles development in developing countries is red tape, bureaucracy and a lack of property rights. When you do not hold the title to what you control, you become very reluctant to give up control over it, because you have no way of ensuring it remains in your possession.

The second flaw in the scheme is that it assumes that nobody from Dharavi can play a bourgeouis role in the rehabilitated area's economy. In reality, a number of Dharavi denizens can afford to buy property there, and are incensed that they do not have the right to buy themselves a better flat.

The solution, at least to me, seems quite simple. First, financially reimburse those who control different properties, instead of simply taking over the land with only providing compensation in kind (e.g. free housing in the new development). I am not sure if this is part of the plan, but it ought to be.

The second is to provide a housing allowance for all Dharavi dwellers instead of just giving them a flat. Make them consciously choose to stay in the area, or leave it for a new home. Empower them with a choice.

This choice should also extend to the kind of home they get. Those who can afford it will be able to get a better house; those who want to save can scrimp and buy or rent a less lavish home.

These flexible measures should go some way to easing the discontent of the slum dwellers, and also illustrate the need to understand some economic principles before plunging into a development project. If the government forces a choice on the slum dwellers, and does not account for individual preferences and individual decisions, it cannot hope to succeed in a world where the market economy has proven itself.

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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

Infernal Ramblings is run by John Lee. For more, see the About section. If you have any questions or comments, do drop him a line.

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