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Do slums make economic sense?

By XN Iraki | May 3rd 2016

Why do slums co-exist with affluent neighbourhoods? Mukuru with South B, Kangemi with Loresho, Githogori with Runda, Mathare with Muthaiga, Deep Sea with Spring Valley?

Other towns outside Nairobi seem to exhibit the same pattern, both in Kenya and outside it.

For politicians, slums are good repositories of vulnerable voters who are easy to sway because of their needs and wants. They are now sources of ‘free land’.

But what of economists? Do slums make economic sense?

To NGOs, slums can be a good cause for funding. Potential donors are moved by the plight of slum dwellers. It is no wonder that slums have a very high concentration of NGOs. It is another matter if their work improves lives.

Slums make economic sense to some. In the morning as you head towards Nairobi’s central business district, you will come across thousands of pedestrians walking in the same direction around Pangani, T-Mall or Westlands.

They walk because they may not be able to afford bus fare. They get jobs that pay per hour or per day. Since there are many job seekers, they are often paid the lowest possible wage. That reduces the cost of production for the owners of industries. Labour is the most expensive factor of production.

A reduction in costs means profits go up. If the firm is listed, you get higher dividends and your wealth increases because high profits lead to higher share prices.

Retained earnings go up and the firm can expand its business, leading to economic growth. Those men and women you see walking to work improve your bottom line — you should consider giving them a lift next time.

If the firm is not listed, the owners get higher profits. They can afford better living standards, live in better suburbs, and if possible, reinvest the profits to create more firms and jobs.

It is not an exaggeration to state that those who live in affluent places to a large extent owe their good life to slum dwellers.

Satanic mills

The owners of the factors of production argue that they pay taxes and they need not feel guilty about paying slum dwellers low wages. If you read Charles Dickens’ Hard Times, he writes of dark satanic mills. It is because of such mills that laws were enacted to protect workers from exploitation. But that has not ended and is unlikely to end.

Houses in slums are very profitable, considering their size and the materials used.

In the slums, products are sold in small quantities (kadogo economy), which is also more profitable. I hear you can buy toothpaste for one morning’s use.

Slums are, therefore, uneconomical to the individuals who live there, but lots of people benefit from them. I lived in a ghetto in Mississippi, USA and had my share of slum life.

Businesses make money from slums for another reason: lack of information. If you are affluent, you have the luxury of comparing prices before you make a purchase. Not slum dwellers. You may say they have phones, but they rarely use these to buy data bundles for surfing the net.

Poverty trap

Slums are costly to the economy in the long run because their dwellers often suffer from low expectations and never reach their full potential.

There are very many surgeons, engineers, lawyers, statisticians and other professionals who never left the slums. Their potential was never developed. My interaction with slum dwellers in both the US and Kenya has left me with no doubt that one can accept his/her fate and perpetuate the cycle of poverty unknowingly. Maybe that is why slums are so persistent.

Slums make it easy to discriminate in terms of service provision, whether power, water or schools.

The representatives of slum dwellers, from MCAs to senators, may not even live there. In some countries, the law demands that every residential estate be built with a certain percentage of low-income houses to avoid this discrimination.

In developed countries, there have been bold attempts to help slum dwellers get out of the poverty trap. They get food stamps and subsidised housing, and even loans to go to school. This reduces crime. There is always the risk that slum dwelling can become intergenerational.

There are some who believe that slums will always be with us because we shall never be equal like the horns of a cow. The truth is that slums deny men and women dignity and a chance to reach their full potential.

Any initiative to improve their lot, like the Government’s slum upgrading programme, should be supported. The biggest obstacle to any slum improvement initiative is changing the mindset of the dwellers, but we must never shy away from such initiatives.

Improving the standards of living for as many citizens as possible makes economic sense and is the hallmark of any civilisation.

Slums only make economic sense to a few. To the vast majority, they do not. They are indicators of our failure to grow the economy, reduce inequality and make this small planet a better home.

The writer is senior lecturer, University of Nairobi.

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