To summarize my meeting with Bish regarding private sector and slums:
- The private sector expands SCALE. They are able to come up with a marketable solution that provides money for the company and (housing) for the poor
- The private sector has always been involved, since the beginning of slums, through private INFORMAL development. What happens when we actually formalize these things?
- The big question: AFFORDABILITY. How are these companies able to bring the costs down? Land cost, housing cost, utilities. Costs are not actually that cheap and are hard to replicate - so what are they doing to make this cheaper?
- Supply, demand, pricing - HOW DO YOU BRING THE PRICE DOWN?
- Don't try to address every aspect of the question, it's too much / too broad.
- Also, what is the area's relationship to the rest of the city - institution wise?
- Potential people to talk to / read:
*O'Connor and Gulyani, WB
*Jeffrey Paine
*Annette Kim, Hong - property, taxes, etc
*Doug Keane
Thursday, October 22, 2009
3 - The Private Sector + Slums
Baker, J. and K. McClain (2009). Private Sector Initiatives in Slum Upgrading. Urban Paper No. 8. Washington, DC, The World Bank, Urban Sector Board.
In this paper, Baker and McClain provide a broad but in-depth assessment of the state of private sector initiatives in slum upgrading, looking at upgrading as both physical services (infrastructure, housing, etc) as well as more social and intangible aspects (tenure security, access to credit, social programs, etc). The recent cry for increased private sector involvement is attributed to the speed and scale at which slums are outpacing efforts to prevent and to upgrade them by the government; there seems to be a consensus that the private sector is able to provide the financing and expertise lacking in current efforts to potentially combat this rapid growth.
Though we often tend to categorize slum upgrading efforts as either a public or a private effort, they claim that "Almost 50 years of experience in improving housing and living standards for the urban poor has taught the development community that neither the government nor the private sector alone can provide the poor with the basic requirements for healthy urban living." (2)
The authors make an important note at the beginning that slums are essentially entrenched in the private sector already and respond to the market's distortions and incentives. The prevalence of the informal economy, for goods, services and land, demonstrates to us that even though the slum economy is illegal, it is still a market-based system that responds in the way normal economies do. This reliance on the market in slums provides an open door for the formal private sector to reach in and service this population, who often are already engaging the poor in some way or another (either benevolent or harmful).
The private sector has an intriguing relationship with slum dwellers. The paper first explores the economic environment in which private-sector slum upgrading might occur, then looks at the potential barriers that might prevent engagement. For the economic environment, macroeconomic concerns are identified as major factors in both private-sector decision-making and the state of slums, while the state of the private sectors in different countries is also noted to strongly influence what can potentially be done. There are significant barriers to engaging the private sector in slum upgrading, moreover, from a lack of experience and understanding of the poor to business practices ill-suited for low-income populations (such as the requirement of collateral, traditional unit-based pricing schemes, etc.) An important point noted is that oftentimes, the poor demand more sub-standard goods that the private sector cannot provide under the legal framework within the country, and so there is clashing there as well.
One of the most prevalent concerns mentioned is the issue of "public goods." Many of the goods demanded or required by the poor are those that are typically considered to be "public," or having strong "positive externalities," meaning that is not attractive to or normal for the private sector to handle them. Other concerns highlighted are the debate over property rights, crime and violence, and a lack of interaction between corporate culture and the poor.
These challenges aside, there remains extremely strong opportunities and reasons for the private sector to get involved in slum upgrading. Other than the obvious fact that the market is massive, with approximately one billion living in slums, it has been argued that the poor actually retain significant purchasing power, with remittances and "dead capital" comprising much of this credit. Given that currently, most of this cash is going to the costlier, lower quality, potentially unsafe and exploitative informal economy, it could be extremely beneficial to the formal private sector to tap into this market.
The article then goes into more specific strategies and examples of what is currently going on in terms of private sector involvement in slum upgrading. Identifying the different clients as local governments, community organizations, wealthy consumers (as a strategy to leverage the higher profits in a cross-subsidy method) and the poor themselves, the authors highlight specific notable methodologies in play in these various relationships. For example, local governments can utilize finance facilities - such as the Community Water and Sanitation Facility - to find gap funding to interact with the private sector, and community groups can negotiate collectively with businesses to guarantee credit and demand services. Some of the more intriguing strategies include "Transferable Development Rights," where the incentive of increased benefits is used to demand low-income housing, and where microfinance institutions work in conjunction with building suppliers. Another fascinating innovation is the smaller packaging of more luxury items (shampoo, soap, medicines) that allow the poor to purchase in smaller and more feasible quantities. The authors also cite new technological developments in payment services, such as cellphone banking and pay-per-use facilities, as well as the increase of small-scale entrepreneurs, as providing positive effects in slums.
The authors close with a series of recommendations for the private sector that will allow firms to work with the urban poor in a more scalable and effective manner. This paper, moreover, left me with a more positive feeling than more evaluations and assessment of slums usually do - a sense that there is an extreme amount of potential that is feasible, that can work, and is working. Having participated in a social entrepreneurship competition, and noting the growing popularity of corporate responsibility and social philanthropy, I believe that the private sector will be truly instrumental in bringing about change in slums in the next few decades, and hope that the private and public sectors recognize this exciting opportunity.
In this paper, Baker and McClain provide a broad but in-depth assessment of the state of private sector initiatives in slum upgrading, looking at upgrading as both physical services (infrastructure, housing, etc) as well as more social and intangible aspects (tenure security, access to credit, social programs, etc). The recent cry for increased private sector involvement is attributed to the speed and scale at which slums are outpacing efforts to prevent and to upgrade them by the government; there seems to be a consensus that the private sector is able to provide the financing and expertise lacking in current efforts to potentially combat this rapid growth.
Though we often tend to categorize slum upgrading efforts as either a public or a private effort, they claim that "Almost 50 years of experience in improving housing and living standards for the urban poor has taught the development community that neither the government nor the private sector alone can provide the poor with the basic requirements for healthy urban living." (2)
The authors make an important note at the beginning that slums are essentially entrenched in the private sector already and respond to the market's distortions and incentives. The prevalence of the informal economy, for goods, services and land, demonstrates to us that even though the slum economy is illegal, it is still a market-based system that responds in the way normal economies do. This reliance on the market in slums provides an open door for the formal private sector to reach in and service this population, who often are already engaging the poor in some way or another (either benevolent or harmful).
The private sector has an intriguing relationship with slum dwellers. The paper first explores the economic environment in which private-sector slum upgrading might occur, then looks at the potential barriers that might prevent engagement. For the economic environment, macroeconomic concerns are identified as major factors in both private-sector decision-making and the state of slums, while the state of the private sectors in different countries is also noted to strongly influence what can potentially be done. There are significant barriers to engaging the private sector in slum upgrading, moreover, from a lack of experience and understanding of the poor to business practices ill-suited for low-income populations (such as the requirement of collateral, traditional unit-based pricing schemes, etc.) An important point noted is that oftentimes, the poor demand more sub-standard goods that the private sector cannot provide under the legal framework within the country, and so there is clashing there as well.
One of the most prevalent concerns mentioned is the issue of "public goods." Many of the goods demanded or required by the poor are those that are typically considered to be "public," or having strong "positive externalities," meaning that is not attractive to or normal for the private sector to handle them. Other concerns highlighted are the debate over property rights, crime and violence, and a lack of interaction between corporate culture and the poor.
These challenges aside, there remains extremely strong opportunities and reasons for the private sector to get involved in slum upgrading. Other than the obvious fact that the market is massive, with approximately one billion living in slums, it has been argued that the poor actually retain significant purchasing power, with remittances and "dead capital" comprising much of this credit. Given that currently, most of this cash is going to the costlier, lower quality, potentially unsafe and exploitative informal economy, it could be extremely beneficial to the formal private sector to tap into this market.
The article then goes into more specific strategies and examples of what is currently going on in terms of private sector involvement in slum upgrading. Identifying the different clients as local governments, community organizations, wealthy consumers (as a strategy to leverage the higher profits in a cross-subsidy method) and the poor themselves, the authors highlight specific notable methodologies in play in these various relationships. For example, local governments can utilize finance facilities - such as the Community Water and Sanitation Facility - to find gap funding to interact with the private sector, and community groups can negotiate collectively with businesses to guarantee credit and demand services. Some of the more intriguing strategies include "Transferable Development Rights," where the incentive of increased benefits is used to demand low-income housing, and where microfinance institutions work in conjunction with building suppliers. Another fascinating innovation is the smaller packaging of more luxury items (shampoo, soap, medicines) that allow the poor to purchase in smaller and more feasible quantities. The authors also cite new technological developments in payment services, such as cellphone banking and pay-per-use facilities, as well as the increase of small-scale entrepreneurs, as providing positive effects in slums.
The authors close with a series of recommendations for the private sector that will allow firms to work with the urban poor in a more scalable and effective manner. This paper, moreover, left me with a more positive feeling than more evaluations and assessment of slums usually do - a sense that there is an extreme amount of potential that is feasible, that can work, and is working. Having participated in a social entrepreneurship competition, and noting the growing popularity of corporate responsibility and social philanthropy, I believe that the private sector will be truly instrumental in bringing about change in slums in the next few decades, and hope that the private and public sectors recognize this exciting opportunity.
Friday, October 2, 2009
3 - Just a thought.
I wrote a fairly cynical piece on the concept of progress...
My TA's comments:
"In response to cynicism, one might ask whether it is necessary to know for sure that we are doing better than previous generations, or is it enough to know that we are doing the best we can?"
My TA's comments:
"In response to cynicism, one might ask whether it is necessary to know for sure that we are doing better than previous generations, or is it enough to know that we are doing the best we can?"
3 - Prevention and Treatment = the best approach for slum upgrading
Payne, G. (2005). "Getting ahead of the game: A twin-track approach to improving existing slums and reducing the need for future slums." Environment and Urbanization 17(1): 135-146.
This article recognizes some of the important steps that have been made for those living in slums worldwide, while identifying problem areas and strategies to be taken for future success. First off, the author delves into the issue of slums from the UN and other multi-lateral finance institutions’ perspectives, picking apart the Millennium Development Goals – most notably Goal 7, “in which target 10 seeks to halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation; and target 11 seeks to have achieved by 2020 a significant improvement in the lives of at least 100 million slum dwellers.”
Though many applauded the MDGs at their time of inception for including issues of urban poverty and creating a benchmark at all – a long-awaited step – increasing numbers of development planners and practitioners have expressed displeasure with the specific numbers provided in this particular goal. Given that there are approximately 1 billion living in slums, and potentially up to 2 billion by 2030, achieving target 11 would almost be making a “retreat than achieve significant progress,” argues Payne. Simply speaking, the number is simply neither ambitious nor radical enough to make even any damage in the greater global picture.
Given that focusing on “improving” the lives of slum dwellers is insufficient, Payne proposes a “twin-track” approach of treatment and prevention, if you will. Essentially, he suggests a fairly common-sense but not often articulated approach: where those living in slums receive help to improve their lives, and city conditions and policies are geared to prevent future slum formation.
In terms of improving living conditions for current slum dwellers, Payne highlights different methods of providing intermediate and perceived tenure security, the provision of which could potentially improve living conditions fairly simply. For example, many make the argument that increased tenure security encourages home reinvestment and entrepreneurial behavior, both positive and easy ways of improving slums. However, the combination of tenure as well as property rights can result in unintended consequences – the selling of newly deeded land, the increase of squatters elsewhere, etc., and so he cautions against rushing into these types of policies.
Preventing future slum formation is, however, a daunting and significant task that has bested even the best governments out there. Nevertheless, Payne focuses on suggestions that plan for “significantly improving access to legal land and shelter,” attempts to deflect the need for cheap land and affordable housing. He also addresses institutional aspects of implementation, such as identifying the roles – current or future – of various stakeholders, and their strengths and weaknesses.
Concluding with an in-depth analysis of twin-track approach taken in Cambodia, the author shows that this type of approach is feasible, though intensive. I felt that this topic was overtly obvious, but perhaps it is better for the development community to have heard this very simple suggestion for a very complex problem.
This article recognizes some of the important steps that have been made for those living in slums worldwide, while identifying problem areas and strategies to be taken for future success. First off, the author delves into the issue of slums from the UN and other multi-lateral finance institutions’ perspectives, picking apart the Millennium Development Goals – most notably Goal 7, “in which target 10 seeks to halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation; and target 11 seeks to have achieved by 2020 a significant improvement in the lives of at least 100 million slum dwellers.”
Though many applauded the MDGs at their time of inception for including issues of urban poverty and creating a benchmark at all – a long-awaited step – increasing numbers of development planners and practitioners have expressed displeasure with the specific numbers provided in this particular goal. Given that there are approximately 1 billion living in slums, and potentially up to 2 billion by 2030, achieving target 11 would almost be making a “retreat than achieve significant progress,” argues Payne. Simply speaking, the number is simply neither ambitious nor radical enough to make even any damage in the greater global picture.
Given that focusing on “improving” the lives of slum dwellers is insufficient, Payne proposes a “twin-track” approach of treatment and prevention, if you will. Essentially, he suggests a fairly common-sense but not often articulated approach: where those living in slums receive help to improve their lives, and city conditions and policies are geared to prevent future slum formation.
In terms of improving living conditions for current slum dwellers, Payne highlights different methods of providing intermediate and perceived tenure security, the provision of which could potentially improve living conditions fairly simply. For example, many make the argument that increased tenure security encourages home reinvestment and entrepreneurial behavior, both positive and easy ways of improving slums. However, the combination of tenure as well as property rights can result in unintended consequences – the selling of newly deeded land, the increase of squatters elsewhere, etc., and so he cautions against rushing into these types of policies.
Preventing future slum formation is, however, a daunting and significant task that has bested even the best governments out there. Nevertheless, Payne focuses on suggestions that plan for “significantly improving access to legal land and shelter,” attempts to deflect the need for cheap land and affordable housing. He also addresses institutional aspects of implementation, such as identifying the roles – current or future – of various stakeholders, and their strengths and weaknesses.
Concluding with an in-depth analysis of twin-track approach taken in Cambodia, the author shows that this type of approach is feasible, though intensive. I felt that this topic was overtly obvious, but perhaps it is better for the development community to have heard this very simple suggestion for a very complex problem.
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