finweek

Cities as a poverty-alleviation tool

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Johan Fourie is associate professor in economics at Stellenbosch University.
Johan Fourie is associate professor in economics at Stellenbosch University.

Brazil is a fascinating country to travel to as a South African. It’s vibrant, slightly chaotic and mesmerising all in one. And, beyond the airports and major tourist areas, quite a challenge for someone with no knowledge of Portuguese.

I was invited to a rural university town in the state of Minas Gerais in May to deliver a series of talks. From the airport in Belo Horizonte my driver, hellbent on showing off his Grand Prix skills, took me on a five-hour rollercoaster ride through the hilly countryside. What was formerly a mining, coffee and sugar plantation region was now mostly vacant –  most of the land reclaimed by veld and forests. The language barrier prevented a detailed enquiry, but from what I could gather, his answer was simple: people are moving to the cities. They want better lives.

Rapid migration to cities is a global phenomenon. People “vote with their feet” for better economic opportunities.

This is true in SA too. Poverty here is largely a rural phenomenon. Yes, townships on the periphery of cities house many poor residents, but they have better lives than those in the former homelands where many of them come from.

The search for a better life for them and their children is why they moved in the first place.

Those of us with a romantic view of life in the countryside may think that this flood to the cities can be reversed by, for example, policies that would expand land access or improve rural living standards. But lack of land is not the reason people migrate to cities in large numbers, not in SA and not in Europe, China or Brazil.

In several European countries, rural areas have been abandoned, taken over by forests and returning wildlife. European policymakers have tried to prevent this by offering expensive agricultural subsidies to farmers (at the cost of farmers in Latin America, India and Africa), but this has just slowed the inevitable. Farms are now being bought up by rich city-folk that want weekend getaways. Cities are what creates wealth; the countryside is for spending it.

In China, because of the disastrous policies of Mao, land was equally divided among citizens. Yet with the onset of modern economic growth in China since the 1980s, millions of families have relocated to the cities; first to fill jobs in low-skilled, labour-intensive sectors, but as the economy has grown and wages have increased, to more skill-intensive sectors. Their children will attain much higher living standards than their parents and grandparents could ever dream of.

The story is no different in Brazil. Rich and poor move to cities, because that’s where their living standards are most likely to improve. Trying to slow down urbanisation is futile; in fact, it is likely to do more harm than good.

Cities are where people prosper: they have access to employment opportunities, better schools and clinics, electricity, water and sanitation and access to a greater variety of social institutions and entertainment, like churches and sport clubs.

But because cities are so attractive, it results in higher levels of inequality – new poor migrants from the countryside continually fill the gaps left by the formerly poor who have worked their way up.

Inequality in cities should thus be interpreted with caution: it’s a consequence of, rather than a break from, progress. The poor care less about the Gini coefficient and much more about the possibility of social mobility – the possibility to escape poverty.

Evidence of how migrants’ living standards improve is provided in a new paper by Ivan Turok and Justin Visagie. They track rural migrants to SA cities between 2008 and 2014. Before their move to the city, 80% of these migrants were living below the poverty line. Six years later, results show, “The level of income poverty for these migrants (now living in an urban environment) had more than halved to below 35%. Meanwhile, the poverty level for individuals who remained in the countryside stayed very high at 70%.”

It’s for this reason that some economists are proposing a somewhat contentious poverty-alleviating policy: subsidies to help those in rural areas migrate to cities.

A new paper by David Lagakos, Ahmed Mobarak and Michael Waugh uses an experimental programme of migration subsidies in Bangladesh to calculate the effect on migrant welfare. They find that for the poorest households, the welfare gains from migration subsidies are higher than unconditional cash transfers or a rural workfare programme costing the same total amount. “This suggests that conditional migration transfers may be a useful way to raise the welfare of poor rural households in the developing world,”they write.

The influx of migrants is, and will continue to be, difficult for cities already suffering backlogs and scarce resources to manage. But there are ways to support them. National and provincial governments can do more to give cities control over land and infrastructure they own, such Metrorail.

Greater private sector involvement can speed up the provision of basic services, notably in housing and internet connections. Political competition, like what’s happened in Johannesburg, Pretoria and Port Elizabeth, will help to push out bureaucratic incompetence and corruption, and promote service delivery.

Urbanisation is the key to future prosperity, in SA, Brazil and elsewhere. Any policy to keep people in rural areas amounts to a policy to keep them poor.

Johan Fourie is associate professor in economics at Stellenbosch University.

This article originally appeared in the 7 June edition of finweek. Buy and download the magazine here, or sign up for our weekly newsletter here.

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