Keynes Prize: The Economics of Cities (2)

In this second extract from his prize-winning essay, Ross van der Watt focuses on the question “Should Rapid Urbanisation in Developing Countries be encouraged or resisted?”

Cities in developing countries have an infamous reputation for being dangerous, crime-ridden shanty towns, where the squalid density of their populations helps in the spread of disease and the contamination of water rather than the enlightenment of its people. However, cities don’t make people poor; they attract poor people. The presence of poverty in urban areas reflects urban strength, not weakness because cities offer great opportunities and social freedoms which attract so many in the developing world from the country. Furthermore, urbanites’ prospects are much higher than those living in their rural villages. The poverty rates among recent arrivals to the city are much higher than the poverty rates of the long term residents which suggests that, over time, city dwellers can greatly improve their fortunes⁷.

Many charities and aid institutions believe it’s their role to prevent farmers from having to leave their ‘romantic’ lifestyles for the city. “Many of my contemporaries in the developed world” writes Stewart Brand,” regard subsistence farming as soulful and organic, but it is a poverty trap and an economic disaster.”⁸ Surely an African slum or a South American favela is worse than a tranquil farming village? Not according to the millions of people who fervently express their preference for the opportunity and freedom of the city, despite the poor living conditions. “I am better off in all facets of life compared to my peers left behind in the village” states Deroi Kwesi Andrew, a teacher earning $4 a day in Accra.⁹ The shanty towns of Rio de Janeiro may look terrible when compared to a UK suburb but poverty rates in Rio (of around 9%) are far lower than in Brazil’s rural northeast (with rates of 55%).¹⁰ Furthermore, one recent study showed that while 90% of Rio de Janeiro residents earned more than $85 a month in 1996, only 30% of people in the rural northeast were above that poverty line.¹¹ Therefore, despite appearances, the poor people concentrated in the favelas of Rio are considerably better off than those without access to the opportunities of the city.

Using the example of India, urbanisation is the foundation upon which its future growth will be based (from 2011 to 2030) with over 70% of the 170million net new jobs being created in the city accounting for more than 70% of GDP. This will have the effect of driving an expected fourfold increase in incomes per capita across the country¹². Furthermore, urbanisation stimulates the whole Indian economy with the city providing more non-agricultural jobs that are important for the eventual increase in agricultural productivity and income. Moreover, the urban economy looks to provide 85% of total tax revenue while enriching the 200million Indians who live in close proximity to the 70 largest Indian cities¹³. Urbanisation therefore seems to be an extremely cost-effective way of providing access to basic services for a greater proportion of the Indian population. It is clear that cities are the path out of poverty, and preventing urban growth makes developing countries artificially poor.

Excessive population growth in developing countries often blights their development and strains their resources. Urbanisation itself offers the key to more stable population levels. It seems clear now that the world is experiencing the second half of the demographic transition where previously there was high fertility and high mortality. Increasingly countries are seeing low mortality coupled with low fertility. One of the reasons given for why developed countries’ birth rates have fallen below the replacement rate of 2.1 is increased wealth, allowing parents to choose other consumer goods over their time-consuming and demanding children. Furthermore, female emancipation, due to better education, leads to women who have more control over family. Importantly, the urban environment encourages both these factors, as higher wages provide more disposable income for immigrants while the more liberal environment associated with cities (in comparison to rural areas) gives women greater freedoms. Additionally, city living itself is often cited as a reason for falling birth rates as parents often find large families a drawback in cities where space is at a premium.

Much of the Third World has long been mired in corruption. Cities encourage the development of law and order through political pressure imposed by a body of better educated individuals. It is therefore increasingly important to encourage urbanisation in those countries where general ignorance is the means by which oppressive governments retain power or where corruption saps the growth from a struggling economy.

However, while the flow of migrants into cities may greatly improve the opportunities and standard of living of the immigrants, it often decreases the quality of life for the middle income people who are already living in those areas and who now have to share their amenities between more people. Through government policies and investment the costs of density can be dealt with as they have been in developed countries.

Urbanisation therefore is the only way for developing countries to encourage innovation and productivity rises which are so desperately needed to expand their economy. The great masses of urban poor do create challenges that must be faced, but it is demonstrably better to continue migration into cities that can accommodate millions more of the rural poor than for these potential migrants to end their days in agricultural isolation and poverty.

By 2025 it is estimated that 5billion people will be living in cities, with fast falling rural populations. This transition is good for the planet as city dwellers take up less space, use less energy and have less of an impact of the environment than country dwellers. This is why urbanisation should be actively encouraged in developing countries to ensure that they capitalise on the productivity and income rises associated with urban growth. “Thoreau was wrong. Living in the country was not the right way to care for the Earth. The best thing that we can do for the planet is build more skyscrapers.”¹⁴