The seven myths of ‘slums’ - Myth 5: the free market can end slums

“The creation of a new urban commons, a public sphere
of active democratic participation, requires that we roll 
back that huge wave of privatisation that has been the
mantra of a destructive neo-liberalism in the last few years.”[i]

According to the international institutions and powerful states that drive globalisation (along with most of the business community, conservative political parties, libertarian ideologues and the corporate-controlled media that gives voice to their concerns), we are told that social injustice can only be addressed by the proper application of some version of free market capitalism. As the appalling poverty that haunts the world is the foremost expression of social injustice, and as the incidence of slums concentrated in cities is the most visible manifestation of poverty, this rigid faith in the magic of market forces to end slums demands special consideration. Since Margaret Thatcher and Ronald Reagan began their attack on social housing in the 1980s – a symbolic hallmark of the ideology that has permeated almost every aspect of political, economic and social life in the intervening years – we are still led to believe that ‘There Is No Alternative’ to the tenets of economic liberalism: free markets, free trade, small governments and privatisation. Get the inefficient government out of the way, remains the assumption, and the beneficent power of the market mechanism and private capital will act as the levers of economic growth and widespread affluence.

Before we can assess the implications of this prevailing ideology, it is first necessary to understand how free market policies have transformed the nature of civic life and the role of citizens within cities. The urban policy agenda of recent decades is still referred to in academic discourse as neoliberalism or neoliberal urbanism/governmentality – a term that can be attributed to a distinct phase in the struggle between market- and state-led capitalism since the 17th century. Dedicated to the extension of market forms of governance into almost all spheres of social life, proponents of this political-economic philosophy reached an intellectual prominence – if not hegemony – with the collapse of the Soviet Union in the late 1980s. The significantly more limited role for the state that neoliberalism envisioned was unprecedented in the history of capitalism; prior to the 1970s, even conservative movements countenanced a broader vision for state-led governance than is now the case.[ii]

As a result, the role of urban governance has fundamentally changed over recent decades, with the word ‘governance’ becoming a general term to denote the changing balance between government and the private sector [see Myth 1]. The rationale for this shift lies in the apparently growing gap between available resources and welfare demand – according to the perspective of most economists, governments alone can no longer afford to meet the needs of all residents in cities. In reality, the responsibility for securing wealth and welfare has been devolved from governments to the individual under what some academics have called the initial “roll-back” phase of neoliberalism, in reference to the rolling back of the gains in state-provided welfare achieved during the Keynsian period.[iii] This process involved the retreat from previous government control of resources and state regulations, including public services, nationalised industries, and labour and social rights. Advocates of neoliberalism claim that the way to improve social welfare is through less dependency on governments and a greater reliance on private agencies, hence the motivation behind the privatisation of formerly state-run services and industries. The role of the state is reconfigured into being, first and foremost, the ‘enabler of growth’ and business prosperity.[iv]

Academics have similarly referred to the 1990s onwards as the “roll-out” phase of neoliberalism.[v] As wealth and opportunities became even more unevenly distributed during the Thatcher/Reagan years, the dogmatic devotion to deregulation and marketisation was necessarily replaced by new attitudes to development that voiced a greater concern for social welfare. The World Bank took up the discourse on ‘social capital’, for example, in stressing the importance of “the community’s capacity to work together to address their common needs”, while public-private partnerships (PPPs) were promoted as a solution to poverty and urban regeneration.[vi] An “entirely new paradigm for development” was adopted, in the words of former World Bank president James Wolfensohn, that fostered partnerships between a broad coalition of actors such as international institutions, bilateral agencies, voluntary organisations, the police, schools, neighbourhood residents and (most importantly) investors and the private sector.[vii] Beneath the rhetoric, however, the objective was fundamentally unchanged – to mobilise community and other social networks and assets toward the goal of “a competitive and revitalized urban growth machine”.[viii] This was the ‘growth-first’ approach to urban development that has come to define the modern era; a kind of zero-sum competition among cities and states that prioritises social investment ahead of social equity or redistribution. The name of the game is to transform urban spaces to be as attractive as possible to financial investors, hence the expansion of downtown areas into attractive up-scale service centres, the implementation of large-scale projects (such as train station renovations and waterfront redevelopment schemes) to attract big expositions, conventions, and ‘mega-events’ like the Olympics, and the makeover of central cities to befit them as ‘world class’ conference and hospitality destinations.[ix]

The world class city

The world class, globalising city is managed much like a large corporation and forced to compete for the capital investment required to build new offices and plants and provide jobs. As such, cost-benefit calculations determine the allocation of resources within a city rather than missions of service, equity and social welfare.[x] In what has been called the “city-state”, “city-corporation”, “entrepreneurial-city” or “city of the spectacle”, a manufactured place image of the city is used to represent its value and to attract tourism, convention industries and capital investment from overseas. In effect, the city is turned into a marketed image on the global stage, a packaged commodity called a “world class city”. All players must compete in the new globalising process, including individuals and enterprises as well as entire cities.[xi] It is only under these extreme conditions of competition that the ‘There Is No Alternative’ school of thinking becomes persuasive; even modest efforts for redistribution, which in themselves may be far cries from trying to realise social or economic justice, are understood to be doomed to fail because the capital needed to fund them will simply relocate elsewhere.[xii] With great skill in exploiting these new opportunities, large domestic or transnational corporations are able to benefit from a ‘bidding war’ between the mayors of different cities, who often mortgage away their future through tax forgiveness, debt burdens, and the foregoing of spending on other public needs. As the globalisation champion Thomas Friedman famously argues, you either run with the Global Herd or you will face less access to capital, less access to technology, and ultimately a lower standard of living (at least for those privileged citizens not altogether excluded from the new social order).[xiii] The future of urbanisation is regarded as already determined by the power of globalisation and of market competition, and urban possibilities are limited to “mere competitive jockeying of individual cities for position within the global urban system”.[xiv]

For the individual, the shift in discourse during the roll-out phase of neoliberalism has been accompanied by a redefinition of rights and citizenship. Formerly progressive goals and mottos such as ‘self-reliance’ and ‘autonomy’ are redefined in an individualised and competitive direction; individual freedom, for example, is redefined as “freedom from bureaucracy rather than freedom from want, with human behaviour reconceptualised along economic lines”.[xv] In the process, the notion that the state is obliged to secure a person’s rights and obligations is replaced by a growing conception of individual responsibility. Citizens are increasingly ‘freed’ of the state and led to provide for themselves through market participation. Employees are redefined as entrepreneurs with an obligation to work, not a right to work. No longer relying on the state, they are responsible for their own education and retraining, and must now negotiate access to work and services without state patrimony.

The “self-responsibilisation” for one’s own well-being may be welcomed by wealthier citizens for a number of reasons; in being freed to increase their wealth and consumption without interference from a ‘bureaucratic’ and ‘inefficient’ state, inequality no longer needs to be justified, apologised for or hidden. According to the logic of a market-driven society, inequality is not a problem of what the poor lack, but rather of what they have been unable to achieve. For the ‘global citizens’ that inhabit gated residences of material comforts and privatised services, it is also no longer necessary to identify themselves with the same imagined city as the poor. Furthermore, the responsibility of ensuring access to housing and basic services is not held by the state or the elite, but by the ‘self-governing’ individual through participation in the market. For the poor, however, this means placing a new responsibility upon their shoulders for which they are no more equipped to bear, and with less obligation on the state to ensure access to basic needs.[xvi] The very notion of the ‘right to the city’ - which has laid the basis of a claim to urban residency and citizenship for the urban poor since the 1960s - has been steadily eroded through the dominance of neoliberal ideology and discourses on the competitive city.[xvii] Attention is effectively redirected away from traditional issues of social justice, and the right to the city is reinterpreted in terms of a new ideal citizen-subject: an “aspirational middle-class consumer citizen, ideally primed to live in a ‘world class city’”.[xviii]

Urban management by market forces

This is the background from which we can assess the implications of market liberalisation policies for the urban poor. After several decades of relying on the free market mechanism as a cure-all for the ills of the twenty-first century, the increasing proportion of urban dwellers living in slums is sufficient evidence that the ‘growth-first’ strategy for development isn’t working. Clearly, economic growth alone does not in any way guarantee redistribution and equity. The fallacy of ‘trickle-down’ theory is dramatically expressed in the case of Mumbai, a city in which half the population still lives in slums despite its resounding economic ‘success’ in recent years. India is a foremost example for other reasons: following several decades of nationalism and state-planned growth and welfare-provision after Independence, the adoption of liberalisation and economic reforms since 1991 has been coupled with more discriminatory attitudes to the urban poor [see Myth 2]. The most effective answer to the city’s problems, at least for the cheerful proponents of corporate-led projects who speak of turning Mumbai into another Singapore, is to give market forces free reign over the city. They initially portrayed the market mechanism as a kind of impersonal bailliff who will “painlessly” evict Mumbai’s five or six million poor, and clear the city of all the “undesirables” who don’t fit into India’s rapidly growing service and consumption-centric economy – regardless of the fact that Mumbai continues to attract thousands of rural migrants to the city each year who simply have nowhere else to go.[xix]

Maintaining the city’s image on a global stage then becomes dependent on efforts to keep downtown areas and event spaces free of undesirable groups (such as the homeless, beggars, prostitutes and the very poor). As cities seek to attract tourism and convention industries while catering for a more business-oriented and middle-class clientele, the inevitable side-effects are seen in gentrification and the displacement of poorer communities, along with the abandonment of neighbourhoods that don’t fit into the new design. Even in most successful middle-income nations, urban poverty as manifested through inadequate living conditions and inadequate incomes is still a serious problem that affects a large proportion of the population.[xx] Although globalisation may have acted as the true engine of economic growth in recent decades, the progressive increase in levels of marginality, poverty and inequality highlights the failure of the free market to redistribute its benefits and opportunities.

Employing market forces as the arbiter of resource distribution is socially exclusive, not inclusive, and does not function when there is a need to produce certain types of goods or services such as housing for the poor or welfare services for low-income groups.[xxi] This calls into question the continued trend for privatisation in the provision of basic needs and services. In industrialised countries, an average of 80 percent of the population has access to private housing markets, while 20 percent is dependent on public subsidies. In developing countries the opposite occurs, where private markets have little reach and are highly speculative. In Latin America as a whole, for example, only 20 to 40 percent of the population have access to housing through the real estate market. As public policies do not meet the needs of the remaining 60 to 80 percent, the excluded population are left to meet their own housing needs – which often includes blue-collar workers, public servants and bankers within the illegal squatter settlements and favelas.[xxii] A similar dynamic takes place in the privatisation of urban infrastructures and basic services, a trend that began in the United Kingdom in the late 1970s with Margaret Thatcher’s free market economic reforms and then spread to almost every corner of the globe. During the 1990s, private sector participation was vigorously promoted by international organisations such as the World Bank, IMF and the United Nations Industrial Development Organisation, as well as bilateral development agencies and the governments of fully industrialised countries. The arguments in favour of privatisation were based on the general agreement that public utilities have been too slow in extending access to services, that they can be inefficient and corrupt, and that developing countries reeling from debt were unable to pay for new infrastructures. In particular, the World Bank’s “Cities Without Slums” action plan (in coalition with UN-HABITAT) sought to solve the problem of urban poverty in part through public-private partnerships – a strategy to harness the power of transnational corporations in the delivery of basic social and economic infrastructure to urban slums.[xxiii] Under the free market development paradigm, basic needs like clean water, sanitation, healthcare and education are not considered a birthright, but a privilege of the fee-paying user even in the poorest low-income settlements. The role of the state is not to be directly responsible for addressing society’s needs and problems, but to facilitate and regulate the business sector in undertaking social functions and economic development. In the process of privatisation, public goods are effectively transferred into private hands, and the government acts on behalf of corporations in operating (or building new and large-scale) infrastructures and realising their profit potential.

Privatisation for the poor

While this strategy may have a certain rationale for providing services to high-end consumers in industrialised countries, it has serious flaws when applied to the urban poor in developing countries. The incentive for private provision to low-income areas has little to do with the securing of basic human rights or with development targets such as the Millennium Development Goals, and everything to do with commercial opportunities and potential profit. A key consideration for private companies and their financial investors is scale, as larger projects with a sizeable client base provide the highest rates of return. Private operators are also more likely to cherry pick the most attractive locations with acceptable levels of financial and political risk, ideally in regions with large or growing economies, in cities with denser and wealthier populations, and in more affluent neighbourhoods that are preferably already connected to utilities. None of these criteria apply to low-income populations and slum settlements, where residents are too poor to be profitable and represent too great a financial risk. This reality is reflected in the provision of water and sanitation, in which the least profitable locations are often excluded from the service area in private contracts.[xxiv] Still only around 5 percent of the world’s population is currently served by the formal private sector in water and sanitation, despite the keen support of many development agencies for ‘pro-poor’ private sector participation since the 1990s. An estimated 1.1 billion poor people still lack access to improved drinking water, while 2.4 billion people lack reasonable access to improved sanitation – and most of the unserved urban dwellers in this number live in the low-income neighbourhoods that large water companies have shown little interest in serving.[xxv]

In sub-Saharan Africa, the poorest region of the world which came under substantial donor pressure to privatise in order to access loans or debt relief, few private sector operatives have been willing to negotiate contracts. Most multinational companies regard the region as too risky for investment, two of which (Saur and Biwater) stated that African countries do not represent attractive investments due to the very poor state of public utilities, and because most consumers cannot afford tariffs that are high enough to generate adequate returns.[xxvi] The case of water privatisation in Bolivia is also famous. When the American company Bechtel took over water services in 1999, rates immediately increased by 35 to 50 percent. In the capital city Cochabamba where families earn on average $100 a month, the prospect of paying $20 a month in water bills led to widespread protests and clashes until the government finally annulled the private contract. This story has had a big impact on the polemic debate surrounding water privatisation and was an inspiration for popular resistance against other privatisation contracts around the world, such as Suez’s attempts to privatise the Ganges river in India.[xxvii] As the ‘Cochabamba Water Wars’ poignantly illustrated, privatisation of essential services can dispossess the poor of their right to basic social amenities, whilst servicing the economic interests of multinational corporations (usually based in the wealthiest countries).  

The modern-day privatisation debate also tends to overlook the lessons of history during the nineteenth century. Although the free market viewpoint was prevalent in many countries undergoing sanitary reform over this period, private sector provision only benefitted the wealthiest social groups who were able and willing to pay. Governments eventually became convinced that clean water and sanitation was important for both public health and national economic development, and that the only way to achieve this was through the government provision of piped water and water-borne sewerage systems. By the twentieth century these efforts were institutionalised in most industrialised countries and cities, guided by the goal of universal public provision. It was only with the ascendancy of neoliberal policies from the late 1970s that water, like other essential goods and services, became widely regarded as an “economic good” as opposed to a publicly-held, common resource.[xxviii] In other words, those policies that didn’t work in the heyday of Western industrialisation are now advocated as a new solution for deficiencies in basic service provision throughout the developing world.

It is also noteworthy that private sector provision has achieved neither the scale nor the benefits anticipated in Africa, Latin America and South Asia. Although energy and telecommunications has seen increased private sector participation, the water and sanitation sector – of fundamental importance to poverty and health development targets – has experienced comparatively little privatisation, especially in the poorest countries.[xxix] Recent trends also suggest that the rate of privatisation has been slowing since the late 1990s, and the substantial amounts of private money needed to provide basic infrastructure to low-income areas has simply not materialised.[xxx] This is notwithstanding the unpopularity of privatisation among the poor, nor even the ethical considerations of allowing corporations to extract profits from the poorest people who are trying to secure their basic needs.[xxxi] As the law professor Michael Likosky questions; “If globalization has underdeveloped urban infrastructures for the poor, should the poor then be asked to fuel globalization in their attempt to escape from urban poverty?” The working poor should not need to pay their way out of poverty, says Likosky, in order to profit members of the very corporate class that is in part responsible for their poverty in the first place. Rather than charge the poor for using infrastructures, the state (or if necessary, foreign aid) should pay for the infrastructures of the urban poor – just as governments provided basic services as a public good during the twentieth century.[xxxii]

The right role for governments

One of the tragic paradoxes of globalisation is that privatisation and free market policies hinder the kind of government action that is needed to tackle urban poverty and slum growth. It is indisputable that the private market is unable to provide an answer to the deficiency in housing and urban service provision for the poor, yet the Washington Consensus policies still enforced harsh reductions in government spending on social needs during the 1980s and 1990s. The deregulation and privatisation of public services serves to directly undermine the welfare state and further compromises the ability of public agencies to meet the needs of those who cannot afford the market price for housing, healthcare, education and sanitation. While the greatest need in developing cities is for a stronger and more accountable role for government, privatisation policies and ideas of market efficiency and state-downsizing have severely constrained the capacity of municipal governance. But the role of the state is not actually reduced, nor is the power of the nation-state declining in an era of increasing globalisation. Although international competition and market-driven policies are limiting the options of local governance, both the national and local state is increasingly required for the global economy to function smoothly (such as by enforcing international agreements, formulating binding trade policies, and ensuring the security of global financial transactions).[xxxiii]

The real difference is that the actions of governments are adapted to meet the needs of market growth and the efficient conduct of the business community. It requires infinitely more government planning and intervention to build a skyscraper, for example, than to assist the poor in constructing low-income secure housing. If anything, the formal power of governments to affect the development of cities is greater than ever before, even if this power is generally exercised to facilitate the trends of increasing corporatisation and economic competition. The reason that low-income settlements are given so little priority in national budgets is not simply an indication of severe fiscal constraints or a decreasing role of the state, but more the result of deliberate policy choices in favour of wealthier citizens and the business sector. These attitudes may be shaped by an international policy framework that favours an increased reliance on market forces as the best allocator of resources, but even this doesn’t automatically remove the responsibility of governments to secure the basic rights of all citizens. In this light, the free market approach to urban development can be read as a collusion between governments and corporations to push a common agenda, regardless of the increased partitioning of cities and the exclusion of the urban poor.[xxxiv]

The efficiency-oriented, growth-led and internationally competitive strategies of the ‘city-enterprise’ have failed to combat the problem of slums, and are more likely to exacerbate urban poverty than act as a solution in the future. This dominant approach may well have turned cities into ‘engines of growth’, but the balance sheet of costs and benefits is difficult to justify; technical transformation, prosperity and affluence for the chosen few, but deepening poverty, inequality and increasing marginalisation for the many. The liberalisation of national economies, their global integration, structural adjustment and the privatisation of former public utilities is clearly a marvellous investment strategy for transnational corporations, unless we question its implications for social cohesion or environmental sustainability. This would include, inter alia, the promotion of wasteful consumerism, the undermining of national sovereignty, the weakening of state authority and the depletion of natural resources – and ultimately, a “dehumanizing implosion of deepening alienation, anger, and social breakdown that manifests itself in urban violence, a loss of compassion for the weak, and a disregard of the environmental and human consequences of economic activity”.[xxxv] This is another of the great paradoxes of globalisation: while the push for democratisation is promoted by the flows of information associated with global integration, these same processes have centralised power and control into unaccountable corporate institutions. The result is a system in which a few make decisions on behalf of a whole, returning great rewards to themselves while passing the costs onto others. To formulate new public policies that prioritise the person and community in place of the market and enterprise is therefore the greatest – and most urgent – humanitarian challenge of our time.

Link to full report [pdf]: The Seven Myths of 'Slums' - Challenging Popular Prejudices About the World's Urban Poor

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