Urban Environments and Informal Economies

Urban Environments and Delays

• In low-income countries, setting up an informal business is often preferable.
• The informal and formal economies are frequently interdependent.
  • Goods produced at minimum cost in small workshops are passed on to be finished and sold within the formal economy on national and international markets.
• The informal economy significantly contributes to urban wealth and cannot be overlooked.
  • It was the basis of the Industrial Revolution in 19th-century Europe and may be regarded as a transitional but essential stage in the evolution of city economies.

Disadvantages of the Informal Economy

• The informal economy has been unfairly associated with activities such as:
  • Drug pushing
  • Prostitution
  • Political corruption
  • Bribery
  • Smuggling.
• These activities threaten residents' security and downgrade the city's international image.
• Countries with sophisticated legal and political systems and stronger protection of physical and intellectual property rights experience higher economic well-being.
• Informally run businesses lack these benefits, and the lack of legal property ownership limits access to credit.
• Workers in the informal economy often face health and safety risks and are deprived of rights and benefits associated with law and regulation.
• Lack of protective clothing and adequate instruction cause contamination by toxic chemicals and heavy metals found in solvents and recycled waste.

Case Study: The Informal Economy of Dharavi, Mumbai

• Dharavi is located in the heart of Mumbai, close to the fast-developing commercial center and Mumbai's domestic and international airports.
• It is a unique, vibrant, and thriving "cottage" industry complex, despite its plastic and tin shacks and lack of infrastructure.
• Dharavi is the largest and oldest slum in Mumbai and the best-known in India.
• Population:
  • More than 600,000 people living in 100,000 makeshift homes.
  • The highest population density in the world, at over 100,000 people per square kilometer in an area barely half the size of New York City's Central Park.
• The large scale at which informality occurs yields an estimated $665$ million in annual revenues.
• However, the economic success of Dharavi has a high cost in human welfare.
  • Working environments and conditions are very poor, especially for newly arrived casual workers.

Housing Strategies in Mumbai

• Mumbai has an acute housing problem, with 9 million people living in slums and squatter settlements close to the center, where land costs are among the highest in India.
  • Property in the center of the city costs $9,500,000$, way beyond the reach of slum dwellers.
• Two property companies have found a solution outside the city:
  • They are building 15,000 ultra-low-cost flats in Karjat, 90 kilometers east of Mumbai, costing $210,000$ rupees ($4,100$) for a unit of 19 square meters.
  • Tata is building 1,300 basic units - "nano homes" - at Boisar, 100 kilometers north of the city, costing $390,000$ to $670,000$ rupees ($8,000$ to $14,000$).
    • The simplest consist of a single room with a sink and a toilet behind a partition.
    • The buildings have no more than three stories so there is no need for expensive structural work.
    • Instead of bricks and mortar, the walls are made of lightweight molded concrete blocks.
    • The concrete is made with foam, fly ash, and other waste materials to make it lighter and cheaper.
    • There are no lifts and just one staircase per block.
    • All this means that the homes can be built quickly and with unskilled labor.
• Many slum dwellers are drivers, factory workers, or tailors with incomes of around $90,000$ rupees ($2,000$) a year, enough to buy a flat costing $200,000$ to $400,000$ rupees ($4,200$ to $8,200$).
• Obtaining credit was a problem until recently for slum dwellers with illegal tenure or no permanent address, but now the National Housing Bank and the National Bank for Agricultural Development have agreed to finance companies so they can offer mortgages to these people.
• To reduce risks, buyers must put down at least 25% of the purchase price, and employers must confirm their income.
• The construction of low-cost housing outside the city overcomes some of the problems of overcrowding and insanitary conditions found in the central slums such as Dharavi, but there are drawbacks:
  • There is no accommodation for the informal businesses that were an integral part of a dwelling.
  • Ex-slum dwellers will now have to commute back to the center to work, causing further problems of traffic pollution and congestion.
  • Displacement will disrupt extended families, their social networks, and security.
  • Close business linkages that existed within the informal economy of the slum will be lost.
• There are no easy solutions to Mumbai's housing problems.

Working Conditions in Dharavi

• In dark, unventilated foundries, workers ladle molten metal into a belt buckle mold held with their bare feet.
• In a warehouse, men smeared from head to toe in blue ink strip the casings from used ballpoint pens so they can be melted down and recycled; they do not wear gloves or other protective gear.
• Environmental and health hazards are the realities that workers have to withstand to earn a living.
• Its population has achieved a unique informal "self-help" urban development over the years without external funding, becoming a thriving economic engine.
• The residents, though bereft of housing amenities, have been able to lift themselves out of poverty by establishing thousands of successful businesses.
• A study by the Centre for Environmental Planning & Technology indicated that Dharavi currently has close to 5,000 industrial units producing a wide range of goods, including textiles, pottery, leather, plastics, and poppadums.
• It also processes 80% of Mumbai's recyclable waste.
• Other residents are employed, providing services such as transport for their own community or for Mumbaikers in general.

Threats to Dharavi

• The slum lacks residential infrastructure: one public toilet is shared by 1,400 residents, and water and electricity are available only on a limited basis.
• The state government depicts Dharavi as a large junkyard and intends to relocate its population into tiny cubbyhole apartments in high-rise towers.
• The vacated land can be commercially exploited by developers through the Dharavi Redevelopment Project (DRP).
• At a conservative estimate, a development of this magnitude could fetch developers a profit of at least 90% (approximately $460$ million).
• Case studies from around the world have documented the inappropriateness of high-rise resettlement projects for the poor.
• The social and economic networks on which the poor rely for subsistence in Dharavi cannot be sustained in high-rise structures.
• The least that can be done in this redevelopment plan is to refurbish the workplaces and integrate the industries within the residential units and unfold the project by providing low-rise, high-density housing for existing families engaged in home-based occupations.
• This way, each house will have a ground floor and an additional story, as well as a terrace and courtyard which can be used for these home-based business activities.
• Unfortunately, the formulation of Dharavi Redevelopment Project (DRP) as a profit-maximizing real-estate tool leaves no room for exploring such sustainable and economically valuable alternatives.
• This exposes the DRP as a smoke-screen for a land grab of the worst kind.
• Much economic activity takes place in nearly every home, with a workshop at street level and a living room above.
• Dharavi's informal economic activity is decentralized, home-based, low-tech, and labor-intensive, based on close business networks within a resilient community.
• Entrepreneurs employing large numbers of cheap and flexible casual workers serve the national and international markets, thereby indirectly contributing to the formal economy.Figures referenced in the text:
  • Figure 11.18 Land use in Mumbai, India
  • Figure 11.19 Dharavi the informal economy
  • Figure 11.20 Street in Dharavi